What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-28 compared with 2022-12-28 · 186 added, 100 removed, 13 unchanged (96% of the section changed)

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

for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties.

When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”,

“expects”, “may”, “plans”, “potential” and “intends” and similar expressions,

as they relate to the Company or its management, identify forward-looking statements.

Such forward-looking statements are based on the

beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s

Among the factors that could cause actual results to differ materially are the following:

the effect of business and economic

the impact of competitive products and their pricing;

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Except for historical information

contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties.

When used in this

report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”,

“may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the

Company or its management, identify forward-looking statements.

Such forward-looking statements are based on the beliefs of the Company’s

management, as well as assumptions made by and information currently available to the Company’s management.

Among the factors that

could cause actual results to differ materially are the following:

the effect of business and economic conditions;

the impact of competitive

products and their pricing;

unexpected manufacturing or supplier problems;

the Company’s

ability to maintain sufficient credit arrangements;

changes in governmental standards by which our environmental control products are

evaluated and the risk factors reported from time to time in the Company’s SEC reports, including this report on Form 10-K.

Company undertakes no obligation to update forward-looking statements as a result of future events or developments.

the Company’s ability to maintain sufficient credit arrangements;

changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to

time in the Company’s SEC reports, including this report on Form 10-K.

The Company undertakes no obligation to update forward-looking

statements as a result of future events or developments.

Accounting Policies and Estimates

following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with accounting

principles generally accepted in the United States of America.

The preparation of our financial statements requires management to make

estimates and assumptions that affect the reported amounts of revenues and expenses, and assets and liabilities during the periods reported.

Estimates are used when accounting for certain items such as revenues, allowances for returns, early payment discounts, customer discounts,

doubtful accounts, employee compensation programs, depreciation and amortization periods, taxes, inventory values, and valuations of

investments, goodwill, other intangible assets and long-lived assets.

We base our estimates on historical experience, where applicable

and other assumptions that we believe are reasonable under the circumstances.

Actual results may differ from our estimates under different

assumptions or conditions.

see Note 2 for detailed information regarding our significant accounting policies and estimates in the Notes to Consolidated Financial

Statements in this 2022 Form 10-K.

of Operations - For the fiscal years ending September 30, 2022 and 2021

revenue for the years ended September 30, 2022, and 2021 was $50,274,923 and $43,130,934, respectively, an increase of $7,143,989, or

Net loss for the years ended September 30, 2022, and 2021 was $13,292,242 and $7,886,269 respectively, an increase of the

loss of $5,405,973 or 69%.

Company’s accounting policies are more fully described in Note 2 of the Consolidated Financial Statements.

As disclosed in Note

2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates

and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.

Actual results

could differ significantly from those estimates.

The Company believes that the following discussion addresses the Company’s most

critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and

results of operations and require management’s most difficult, subjective and complex judgments.

September 30, 2023, the Company had approximately $4,400,000 of goodwill.

As discussed in Note 2 to the consolidated financial statements,

goodwill is tested annually for impairment at the reporting unit level, or more frequently if impairment indicators arise.

In accordance

with the FASB revised guidance on “Testing of Goodwill for Impairment,” a company first has the option to assess qualitative

factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

the company decides, as a result of its qualitative assessment, that it is more-likely-than- not that the fair value of a reporting unit

is less than its carrying amount, the quantitative impairment test is mandatory.

Otherwise, no further testing is required.

The quantitative

impairment test consists of a two-step goodwill impairment test.

The first step compares the fair value of each reporting unit to its

carrying amount.

If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and

the second step will not be required.

If the carrying amount of a reporting unit exceeds its fair value, the second step compares the

implied fair value of goodwill to the carrying value of a reporting unit’s goodwill.

The implied fair value of goodwill is determined

in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step

to the assets and liabilities of the reporting unit.

The excess of the fair value of the reporting unit over the amounts assigned to

the assets and liabilities is the implied fair value of goodwill.

This allocation process is only performed for purposes of evaluating

goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities.

An impairment loss is recognized

for any excess in the carrying value of goodwill over the implied fair value of goodwill.

the Company’s goodwill for impairment analyses is complex and highly judgmental due to the nature of qualitive assessment and,

where necessary, the significant estimation required to determine the fair value of the reporting units.

In particular, the fair value

estimate is sensitive to significant assumptions, such as future operating results, cash flows and the weighted average cost of capital.

These significant assumptions are forward looking and could be materially affected by future market or economic conditions.

fiscal year 2023, the Company sold two of its operating entities to Saagar Govil, Chairman of the Board, CEO, President and Secretary,

additionally, there are transactions related to Ducon Industries, Inc.

owned by Aron Govil, Founder, and former CFO and Executive director

all of which are discussed in Note 17 of the consolidated financial statements.

The financial statements shall include disclosures of

material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary

course of business.

However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial

statements is not required in those statements.

The disclosures shall include:

the nature of the relationship(s) involved b.

of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income

statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial

the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of

any change in the method of establishing the terms from that used in the preceding period;

amounts due from or to related parties

as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

fiscal year 2023, The Company acquired Heisey Mechanical, Ltd.

As discussed in Note 1 of the consolidated financial statements.

accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

(“ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets

and liabilities of the acquired business are recorded at their fair values at the date of acquisition.

The excess of the purchase price

over the estimated fair value is recorded as goodwill.

All acquisition costs are expensed as incurred.

Upon acquisition, the accounts

and results of operations are consolidated as of and subsequent to the acquisition date.

Please see Note 2 for detailed

information regarding our significant accounting policies and estimates in the Notes to Consolidated Financial Statements in this Annual

Report on Form 10-K for the year ended September 30, 2023.

Results of Operations - For the fiscal years ending September 30, 2023

Total revenue for the

year ended September 30, 2023, increased by $14,341,782 or 32% to $59,368,562 from $45,026,780 for the year ended September 30,

Net loss for the year ended September 30, 2023, decreased by $3,981,654 to $9,310,588 from $13,292,242 for the year ended

September 30, 2022.

Total revenue for the period increased, as compared to total revenue in the same period last year, due to

increased demand for the Company’s products and services.

Net loss increased due to an impairment of goodwill, write-off of related

party receivables, increased expenses related to personnel costs, depreciation and amortization, insurance, travel, and research and

development costs.

Advanced Technologies segment revenues for the years ended September 30, 2022, and 2021 were $29,068,907 and $24,154,488, respectively,

an increase of $4,914,419 or 20%.

increased demand for the Company’s products and services and $2,316,000 of additional revenue from the business related to the acquisition of Heisey Mechanical.

Net loss decreased due to the increase in revenue, an impairment of

goodwill and the write-off of related party receivables in the prior year.

Our Security segment revenues

for the years ended September 30, 2023, increased by $10,538,706 or 44%, to $34,359,470 from $23,820,764 for the year ended September

This increase is due to an increased demand for security technology products under our Vicon brand.

Industrial Services segment revenues for the year ended September 30, 2022, increased by $2,229,570 or 12%, to $21,206,016 from $18,976,446

for the year ended September 30, 2021.

This increase is mainly due to an increased demand for the segment’s products and services.

Profit for the year ended September 30, 2022, was $19,055,518 or 38% of revenues as compared to gross profit of $16,968,352 or 39% of

revenues for the year ended September 30, 2021.

The decrease in gross profit as a percentage of revenue for the year ended September

30, 2022, as compared to the prior year, was due to increased cost of revenues as a result of increased costs for goods, and increased

transportation costs for goods.

The Company’s gross profit margins vary from product to product and from customer to customer.

and Administrative Expenses

Our Industrial Services segment

revenues for the year ended September 30, 2023, increased by $3,803,076 or 18%, to $25,009,092 from $21,206,016 for the year ended September

This increase is mainly due to an increased demand for the segment’s products and services and $2,316,000 of additional

revenue from the business related to the acquisition of Heisey Mechanical.

Gross Profit for the year ended

September 30, 2023, was $25,685,826 or 43% of revenues as compared to gross profit of $16,565,928 or 37% of revenues for the year ended

September 30, 2022.

Gross profit in our Security segment

was $17,106,300 or 50% of the segment’s revenues for the year ended September 30, 2023, as compared to gross profit of $10,223,704

or 43% of the segment’s revenues for the year ended September 30, 2022.

Gross profit as a percentage of revenues increased in the

year ended September 30, 2023, compared to the year ended September 30, 2022, due to price increases implemented throughout the segment

in January 2023 in response to rising costs of our goods and a reduction in transportation costs in 2023, compared to 2022.

Gross profit in our Industrial

Services segment was $8,579,526 or 34% of the segment’s revenues for the year ended September 30, 2023, as compared to gross profit

of $6,342,224 or 30% of the segment’s revenues for the year ended September 30, 2022.

Gross profit as a percentage of revenues increased

in the year ended September 30, 2023, compared to the year ended September 30, 2022, was primarily due to an increase in prices for our

services and lower subcontractor costs.

General and Administrative Expenses

for the year ended September 30, 2022, increased $5,217,663 or 23% to $27,756,159 from $22,538,496 for the year ended September 30, 2021.

The increase in general and administrative expenses is the result of increased personnel, increased by approximately 21%, travel, increased

by approximately 96%, depreciation and amortization, increased by approximately 39%, legal, and professional accounting fees increased

by approximately 59%, and a one-time write off of related party receivables of $708,512.

and Development Expenses

and Development expenses for the year ended September 30, 2022, and 2021 were $4,851,720 and $3,171,676, respectively.

The increase in

Research and Development expenses are primarily related to the Advanced Technologies Segment’s development of proprietary technology

and further developments of the SmartDesk and Artificial Intelligence (AI) and next generation solutions associated with security and

surveillance systems software.

Income/(Expense)

income/(expense) for the year ended September 30, 2022 was $3,367,574 as compared to $9,511,032 for the year ended 2021.

General and Administrative Expenses

for the year ended September 30, 2023, increased by $994,785 or 4% to $24,006,490 from $22,934,555 for the year ended September 30,

The increase in general and administrative expenses is mainly due to increases in salaries and wages, travel, and utilities.

Research and Development Expenses

Research and Development expenses

for the year ended September 30, 2023, and 2022 were $3,267,994 and $4,444,488, respectively.

The decrease in Research and Development

expenses are primarily related to the Security Segment’s development of proprietary technology and next generation solutions associated

with security and surveillance systems software which are nearing the production phase.

Other Income/(Expense)

for the year ended September 30, 2022, included the following one-time items (i) the settlement with Securities and Exchange Commission,

generated other expense of $2,200,000, (ii) other income resulting from the forgiveness of our PPP loans of $971,500.

Additionally, the

company had realized gains on marketable securities of $8,402,125.

Other income/(expense) for the year ended September 30, 2021, included

the following one-time items (i) the settlement with Aron Govil, generated other income of $3,674,165, (ii) employee retention credits

of $733,426 (iii) other income resulting from the forgiveness of our PPP loans of $5,320,485.

Additionally, the company had realized

and unrealized gains on marketable securities of $2,612,632.

Tax Benefit/(Expense)

the fiscal year of 2022 we recorded an income tax benefit of $208,545 compared to an expense of $375,434 for the fiscal year of 2021.

The decrease in the expense for income tax is mainly due to an increase in the net loss compared to the prior year.

Company’s business and operations have not been materially affected by inflation during the periods for which financial information

is presented.

and Capital Resources

Other income/(expense) for the

year ended September 30, 2023, was $(4,489,605) as compared to $3,302,035 for the year ended 2022.

Other income/(expense) for the year

ended September 30, 2023, was mainly driven by interest expense on the Company’s debt and included an employee retention credit

Other income/(expense) for the year ended September 30, 2022, included the following one-time items (i) the settlement with

Securities and Exchange Commission, generated other expense of $2,200,000, (ii) other income resulting from the forgiveness of our PPP

loans of $971,500.

Additionally, the company had realized gains on marketable securities of $8,402,125.

Income Tax Benefit/(Expense)

During the fiscal year of 2023

we recorded an income tax expense of $394,272 compared to a benefit of $208,545 for the fiscal year of 2022.

The increase in the expense

for income tax is mainly due to an increase in the net income of the industrial services segment compared to the prior year.

Effects of Inflation

The Company’s business and

operations have not been materially affected by inflation during the periods for which financial information is presented.

Liquidity and Capital Resources

Working capital was $1,948,923

4 unchanged sentences

in the Company’s current assets of $2,474,726 and an increase in the Company’s current liabilities of $1,906,473.

primary reason for the decrease in current assets was the cash used for operations during the fiscal year and the decrease in trade receivables,

net, trade receivables – related party, the primary reason for the increase in current liabilities was the increase in the Company’s

current portion of long-term liabilities, due to the maturity of our Notes Payable.

activities for continuing operations used $16,093,504 for the year ended September 30, 2022, compared to using $10,051,165 of cash for

the year ended September 30, 2021.

receivables decreased by $1,850,210 or 24% to $5,960,686

at September 30, 2022, from $7,810,896 at September 30, 2021.

The decrease in trade receivables is mainly due to maintaining

collection efforts.

increased by $3,874,395 or 68% to $9,531,682 at September 30, 2022, from $5,657,287 at September 30, 2021.

in inventories is attributable to the company’s purchase of inventory for the security business of its Advanced Technology segment

to maintain sufficient stock on hand for sale to overcome the recent supply chain delays.

activities for continuing operations provided $6,610,127 of cash during the year ended September 30, 2021, compared to $840,901 provided

in the year ended September 30, 2021.

Investing activities for fiscal year 2022 were mainly driven by the purchase and sale of marketable

activities for continuing operations provided $5,022,537 for the year ended September 30, 2022, as compared to $4,445,932 provided in

the year ended September 30, 2021.

In fiscal 2022 our financing activities were mainly comprised of the proceeds from notes payable offset

by payments on our debt.

Overall, there is no guarantee

that cash flow from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet

our working capital needs for the next twelve months.

We currently do not have adequate cash to meet our short or long-term needs.

consolidated financial statements do not include any adjustments relating to this uncertainty.

reason for the decrease in current assets was the cash used for operations during the fiscal year and the decrease in assets of discontinued

operations, while the primary reason for the increase in current liabilities was the increase in the Company’s accounts payable.

Operating activities for continuing

operations used $4,724,305 for the year ended September 30, 2023, compared to using $16,262,531 of cash for the year ended September 30,

Cash provided by operating activities for discontinued operations for the year ended September 30, 2023, was $2,491,581, compared

to providing cash of $169,027 for the year ended September 30, 2022.

Trade receivables increased by

$3,810,479 or 71% to $9,209,695 at September 30, 2023, from $5,399,216 at September 30, 2022.

The increase in trade receivables is mainly

due to increased revenues and receivables related to the business generated by the acquisition of Heisey.

Investing activities for continuing

operations used $5,628,400 of cash during the year ended September 30, 2023, compared to $6,681,035 provided in the year ended September

Cash used by investing activities for discontinued operations for the year ended September 30, 2023, was $0, compared to using

$70,908 for the year ended September 30, 2022.

Investing activities for fiscal year 2023 were mainly driven by the purchase of property

and equipment and the acquisition of Heisey Mechanical.

Investing activities for fiscal year 2022 were mainly driven by the sale and purchase of marketable securities.

Financing activities provided $2,036,655

of cash for the year ended September 30, 2023, as compared to $5,022,537 provided in the year ended September 30, 2022.

In fiscal 2023

our financing activities were mainly comprised of financing of the acquisition of Heisey and the building purchase.

In fiscal 2022 our financing activities were mainly comprised

of the proceeds on new debt.

The Company has incurred substantial

losses of $9,196,875 and $13,020,958 for fiscal years 2023 and 2022, respectively, and has debt obligations over the next fiscal year

of $14,507,711 and working capital of $1,948,923, that raise substantial doubt with respect to the Company’s ability to continue

as a going concern.

While the Company’s working capital and current debt indicate a substantial doubt regarding the Company’s

ability to continue as a going concern, the Company has historically, from time to time, satisfied and may continue to satisfy certain

short-term liabilities through the issuance of common stock, thus reducing our cash requirement to meet our operating needs.

Additionally,

the Company has recently sold unprofitable brands, reducing the cash required to maintain those brands, implemented a new pricing model

on our Vicon brand which has improved margins on those products, has refinanced some debt to provide the Company with additional capital

when needed, has effected a reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improve our ability

to raise capital through equity offerings and reduce the number of shares the Company may use to satisfy debt.

In the event additional

capital is raised through equity offerings and/or debt is satisfied with equity, it may have a dilutive effect on our existing stockholders.

While the Company believes these plans are

sufficient to meet the capital demands of our current operations for at least the next twelve months, the is no guarantee that we will

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

required under Regulation S-K for “smaller reporting companies”.

Not required under Regulation

S-K for “smaller reporting companies”.

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