What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-15 compared with 2026-02-17 · 140 added, 67 removed, 98 unchanged (68% of the section changed)

47 unchanged sentences

maintenance, specialty welding services, and high-quality scaffolding.

Aerospace and Defense segment operates under the brand Invocon, which offers designing, manufacturing, and supporting advanced instrumentation,

wireless sensing, and telemetry systems deployed across satellites, launch vehicles, target missiles, and space-based platforms.

technologies support numerous government and prime contractor programs, including multiple Space Shuttle and International Space Station

systems, and the company maintains long-standing relationships across the Missile Defense Agency and leading aerospace and defense primes.

Accounting Policies and Estimates

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and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30,

of Operations – For the three months ended December 31, 2025, and 2024

Security segment revenues for the three months ended December 31, 2025, increased by $57,829 or 1% to $5,511,528 from $5,453,699 for

the three months ended December 31, 2024.

This increase is mainly due to increased demand for the Company’s products.

Industrial Services segment revenues for the three months ended December 31, 2025, increased by $2,324,956 or 28%, to $10,611,156 from

$8,286,200, for the three months ended December 31, 2024.

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

was unallocated revenue under the Corporate segment of $10,627 for the three months ended December 31, 2025.

This revenue is related

to the Company’s investment in digital assets.

Profit for the three months ended December 31, 2025, was $5,621,866 or 35% of revenues as compared to gross profit of $5,701,936 or 41%

of revenues for the three months ended December 31, 2024.

profit in our Security segment was $2,160,678 or 39% of the segment’s revenues for the three months ended December 31, 2025, as

compared to gross profit of $2,839,759 or 52% of the segment’s revenues for the period ended December 31, 2024.

Gross profit in

our security segment have been impacted by tariffs.

profit in our Industrial Services segment was $3,450,471 or 33% of the segment’s revenues for the three months ended December 31,

2025, as compared to gross profit of $2,862,177 or 35% of the segment’s revenues for the period ended December 31, 2024.

profit as a percentage of revenues decreased due to lower margins on projects in the three months ended December 31, 2025, compared to

the three months ended December 31, 2024.

of Operations – For the three months ended March 31, 2026, and 2025

Company’s Security segment revenues for the three months ended March 31, 2026, decreased by $11,204,595 or 66% to $5,776,557 from

$16,981,152 for the three months ended March 31, 2025.

This decrease is mainly due to a large sale valued at $10,375,000 for security

technology products under our Vicon brand during the quarter ended March 31, 2025.

Company’s Industrial Services segment revenues for the three months ended March 31, 2026, increased by $768,929 or 7%, to $11,038,046

from $10,269,117, for the three months ended March 31, 2025.

This increase is mainly due to the revenues from the acquisition of Richland,

Company’s newly established Aerospace and Defense segment generated revenues of $1,232,592 for the three months ended March 31,

was unallocated revenue under the Corporate segment of $14,172 for the three months ended March 31, 2026.

This revenue is related to

the Company’s investment in digital assets.

Profit for the three months ended March 31, 2026, was $6,847,204 or 38% of revenues as compared to gross profit of $12,165,455 or 45%

of revenues for the three months ended March 31, 2025.

profit in our Security segment was $2,530,694 or 44% of the segment’s revenues for the three months ended March 31, 2026, as compared

to gross profit of $8,803,856 or 52% of the segment’s revenues for the period ended March 31, 2025.

Gross profit in our security

segment decreased as a result of the large sale mentioned above, additionally gross profits have been impacted by tariffs and fuel surcharges

The Company is currently evaluating the potential impact of tariff refunds on future gross profit percentages.

profit in our Industrial Services segment was $3,781,523 or 34% of the segment’s revenues for the three months ended March 31,

2026, as compared to gross profit of $3,361,599 or 33% of the segment’s revenues for the period ended March 31, 2025.

profit increased in the three months ended March 31, 2026, compared to the three months ended March 31, 2025, was mainly due to the

acquisition of Richland, LLC which lowered outsourcing costs now provided by AIS – TN, formerly Richland LLC.

profit in the Company’s newly established Aerospace and Defense segment was 520,815 or 42% of revenues for the three months ended

March 31, 2026

and Administrative Expenses

and administrative expenses for the three months ended December 31, 2025, increased $833,302 or 12% to $7,926,591 from $7,093,289 for

the three months ended December 31, 2024.

The increase in general and administrative expenses is mainly related to a one-time write off

of obsolete demonstration equipment of $441,624, increased legal expenses related to the preliminary work on acquisitions, depreciation

on recently acquired fixed assets, and travel related to trade show attendance.

and administrative expenses for the three months ended March 31, 2026, increased $1,701,641 or 25% to $8,472,383 from $6,770,742 for

the three months ended March 31, 2025.

The increase in general and administrative expenses is mainly related to the additional expenses

related to the acquisition of Invocon and Richland.

and Development Expenses

and Development expenses for the three months ended December 31, 2025, were $501,435 compared to $890,083 for the three months ended

December 31, 2024, a decrease of $388,648 or 44%.

Research and Development expenses are related to the Security Segment’s development

of next generation solutions associated with security and surveillance systems software.

and Development expenses for the three months ended March 31, 2026, were $546,858 compared to $777,889 for the three months ended March

31, 2025, a decrease of $231,031 or 30%.

Research and Development expenses are related to the Security segment’s development of

next generation solutions associated with security and surveillance systems software and the Aerospace and Defense segment’s development

and improvement of their products.

Purchase Gain

discussed in Note 1 of the Form 10-Q, the acquisition of Richland, LLC resulted in a bargain purchase gain of 2,068,047 based on the

preliminary purchase price allocation.

The purchase price allocation is still preliminary but has been developed based on an estimate

of fair values of Richland’s identifiable tangible and intangible assets acquired and liabilities assumed as of February 5, 2026.

The final allocation of the purchase price will be determined within one year from the closing date of the Invocon acquisition.

Income/Expense

expense for the three months ended December 31, 2025, was $17,515,652, as compared to expense of $26,265,257 for the three months ended

December 31, 2024.

Other expense for the three months ended December 31, 2025, was mainly driven by interest expense of $12,123,695 of

which $11,798,283 represents the discount on shares issued to settle debt.

Other expense for the three months ended December 31, 2024,

was mainly driven by a loss on excess fair value of the warrants at exercise of $15,796,105.

income for the three months ended March 31, 2026, was $3,467,711, as compared to $4,104,211 for the three months ended March 31,

Other income for the three months ended March 31, 2026, was mainly driven by the bargain purchase gain mentioned above, gain

on the exercise of warrant liabilities and the change in the fair value of warrant liabilities, offset by interest expense and the

change in the fair value of the Company’s digital assets.

Other income for the three months ended March 31, 2025, was mainly

driven by the change in the fair value of warrant liabilities.

for Income Taxes

the three months ended December 31, 2025, and 2024, the Company had income tax expense from continuing operations of $266,326 and $120,538,

the three months ended March 31, 2026, and 2025, the Company had income tax expense from continuing operations of $73,859 and $110,525,

respectively.

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The Company’s effective tax rate

for the three months ended December 31, 2025, and 2024, was (1.31%) and (0.42%) respectively.

for the three months ended March 31, 2026, and 2025, was 5.7% and 1.27% respectively.

of Operations – For the six months ended March 31, 2026, and 2025

Company’s Security segment revenues for the six months ended March 31, 2026, decreased by $11,146,766 or 50% to $11,288,085 from

$22,434,851 for the six months ended March 31, 2025.

This decrease is mainly due to a large sale valued at $10,375,000 for security technology

products under our Vicon brand during the quarter ended March 31, 2025.

Company’s Industrial Services segment revenues for the six months ended March 31, 2026, increased by $3,093,885 or 17%, to $21,649,202

from $18,555,317, for the six months ended March 31, 2025.

This increase is mainly due to the revenues from the acquisition of Richland

Company’s newly established Aerospace and Defense segment generated revenues of $1,232,592 for the six months ended March 31, 2026

was unallocated revenue under the Corporate segment of $24,799 for the six months ended March 31, 2026.

This revenue is related to the

Company’s investment in digital assets.

Profit for the six months ended March 31, 2026, was $12,469,070 or 36% of revenues as compared to gross profit of $17,867,391 or 44%

of revenues for the six months ended March 31, 2025.

profit in our Security segment was $4,691,462 or 42% of the segment’s revenues for the six months ended March 31, 2026, as compared

to gross profit of $11,643,615 or 52% of the segment’s revenues for the period ended March 31, 2025.

Gross profit in our security

segment decreased as a result of the large sale mentioned above, additionally gross profits have been impacted by tariffs and fuel surcharges

The Company is currently evaluating the potential impact of tariff refunds on future gross profit percentages.

profit in our Industrial Services segment was $7,231,994 or 33% of the segment’s revenues for the six months ended March 31, 2026,

as compared to gross profit of $6,223,776 or 34% of the segment’s revenues for the period ended March 31, 2025.

Gross profit increased

in the six months ended March 31, 2026, compared to the six months ended March 31, 2025, was mainly due to the acquisition of Richland,

LLC which lowered outsourcing costs now provided by AIS – TN, formerly Richland LLC.

profit in the Company’s newly established Aerospace and Defense segment was 520,815 or 42% of revenues for the six months ended

March 31, 2026

and Administrative Expenses

and administrative expenses for the six months ended March 31, 2026, increased $2,534,943 or 18% to $16,398,974 from $13,864,031 for

the six months ended March 31, 2025.

The increase in general and administrative expenses is mainly related to the additional expenses

related to the acquisition of Invocon and Richland.

and Development Expenses

and Development expenses for the six months ended March 31, 2026, were $1,048,293 compared to $1,667,972 for the six months ended March

31, 2025, a decrease of $619,697or 37%.

Research and Development expenses are related to the Security segment’s development of

next generation solutions associated with security and surveillance systems software and the Aerospace and Defense segment’s development

and improvement of their products.

Purchase Gain

discussed in Note 1 of the Form 10-Q, the acquisition of Richland, LLC resulted in a bargain purchase gain of 2,068,047 based on the

preliminary purchase price allocation.

The purchase price allocation is still preliminary but has been developed based on an estimate

of fair values of Richland’s identifiable tangible and intangible assets acquired and liabilities assumed as of February 5, 2026.

The final allocation of the purchase price will be determined within one year from the closing date of the Invocon acquisition.

Income/Expense

expense for the six months ended March 31, 2026, was $14,047,941, as compared to $22,161,046 for the six months ended March 31,

Other expense for the six months ended March 31, 2026, was mainly driven by the bargain purchase gain mentioned above, loss on

the exercise of warrant liabilities, interest expense, and the change in the fair value of the Company’s digital assets.

expense for the six months ended March 31, 2025, was mainly driven by the loss on excess fair value and change in the fair value of

warrant liabilities.

for Income Taxes

the six months ended March 31, 2026, and 2025, the Company had income tax expense from continuing operations of $340,185 and $231,063,

respectively.

The provision for income tax is estimated based upon the current income projections of the Company, the effective rate

of the prior year, and the Company’s current ability to utilize net loss carryforwards.

The Company’s effective tax rate

for the six months ended March 31, 2026, and 2025, was (1.79%) and (1.17%) respectively.

Company’s business and operations have been affected by inflation during the periods for which financial information is presented.

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and Capital Resources

capital was $24,748,544 at December 31, 2025, compared to working capital of $5,184,339 at September 30, 2025.

This includes cash and

cash equivalents and restricted cash of $21,782,533 at December 31, 2025, and $6,347,041 at September 30, 2025.

The increase in working

capital was primarily due to cash raised in the equity offerings and Series B Warrant exercises and the payment of the Company’s

debt through equity.

used by operating activities for the three months ended December 31, 2025, was $891,914 and $1,201,817 for the three months ended December

Our operating cash flow was mainly the result of our net loss, less the non-cash adjustments, combined with operating changes

in inventory, contract assets, and accrued expenses.

receivables decreased by $3,431,109 or 26% to $9,702,315 at December 31, 2025, from $13,133,424 at September 30, 2025.

The decrease in

trade receivables is attributable to a decrease in sales as compared to the fourth quarter of fiscal year2025.

used by investing activities for the three months ended December 31, 2025, was $253,061 compared to $1,008,899 for the three months ended

December 31, 2024.

Investing activities for the three months ended December 31, 2025, were driven by the Company’s purchase of

property and equipment and investment in marketable securities.

Investing activities for the three months ended December 31, 2024, were

driven by the Company’s purchase of property and equipment and investment in Masterpiece VR.

provided by financing activities for the three months ended December 31, 2025, was $17,305,299 compared to $2,387,449 for the three months

ended December 31, 2024.

Financing activities for the three months ended December 31, 2025, were primarily driven by the proceeds from

equity offerings, proceeds of a note payable, and proceeds from the exercise of the Company’s Series B Warrants.

capital was $13,706,571 at March 31, 2026, compared to working capital of $5,184,339 at September 30, 2025.

This includes cash and cash

equivalents and restricted cash of $7,910,118 at March 31, 2026, and $6,347,041 at September 30, 2025.

The increase in working capital

was primarily due to cash raised in the equity offerings and Series B Warrant exercises and the payment of the Company’s debt through

used by operating activities for the six months ended March 31, 2026, was $5,310,446 compared to providing $1,600,532 for the six months

ended March 31, 2025.

Our operating cash flow was mainly the result of our net loss, less the non-cash adjustments, combined with operating

changes in contract assets, prepaid expenses and other current assets, accounts payable, operating lease liabilities, accrued expenses,

and deferred revenues.

receivables increased by $192,135 or 1% to $13,325,559 at March 31, 2026, from $13,133,424 at September 30, 2025.

The modest increase

in trade receivables is attributable to the acquisitions of Richland and Invocon.

used by investing activities for the six months ended March 31, 2026, was $13,972,452 compared to $1,436,452 for the three months ended

March 31, 2025.

Investing activities for the six months ended March 31, 2026, were driven by the Company’s purchase of property

and equipment, investment in marketable securities, the acquisition of Richland and Invocon, and investment in digital assets.

activities for the six months ended March 31, 2025, were driven by the Company’s purchase of property and equipment and investment

in Masterpiece VR.

provided by financing activities for the six months ended March 31, 2026, was $20,871,752 compared to $1,032,254 for the six months ended

March 31, 2025.

Financing activities for the six months ended March 31, 2026, were primarily driven by the proceeds from equity offerings,

proceeds of notes payable, and proceeds from the exercise of the Company’s Series B Warrants.

Financing activities

for the three months ended December 31, 2024, were primarily driven by the proceeds from the Company’s revolving line of credit,

notes payable, and proceeds from the exercise of the Company’s Series B Warrants.

for the six months ended March 31, 2025, were primarily driven by the proceeds from the Company’s revolving line of credit, notes

payable, and proceeds from the exercise of the Company’s Series B Warrants.

Company’s working capital may not be sufficient to cover operating costs which indicates substantial doubt regarding the Company’s

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

has $21,782,533 in cash and cash equivalents and restricted cash as of December 31, 2025.

Additionally, the Company has (i) secured a

line of credit for its Vicon brand to fund operations, which as of December 31, 2025, has available capacity of approximately $420,000,

(ii) continually reevaluate our pricing model on our Vicon brand to improve margins on those products, (iii) raised $5,657,264 through

the exercise of our Series B warrants during the quarter ended December 31, 2025 (iv) raised $6,000,000 in gross proceeds in equity offering

during the quarter ended December 31, 2025, and an additional $4,000,000 in gross proceeds subsequent to December 31, 2025.

has $7,910,118 in cash and cash equivalents and restricted cash as of March 31, 2026.

Additionally, the Company has (i) secured a line

of credit for its Vicon brand to fund operations, which as of March 31, 2026, has available capacity of approximately $1,100,000, (ii)

continually reevaluate our pricing model on our Vicon brand to improve margins on those products, (iii) raised $5,675,332 through the

exercise of our Series B warrants during the six months ended March 31, 2026 (iv) raised $10,000,000 in gross proceeds in equity offering

during the six months ended March 31, 2026 (v) Invested approximately $5,000,000 of the Company’s surplus cash in various marketable securities to generate

income on those investments.

the event additional capital is raised through equity offerings and/or debt is satisfied with equity, it may have a dilutive effect on

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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-Q

Item 2. Management’s Discussion and Analysis