What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-14 compared with 2026-05-15 · 109 added, 116 removed, 122 unchanged (65% of the section changed)

26 unchanged sentences

and its subsidiaries.

Company’s reporting segments consist of Security and Industrial Services.

Additionally, the Company’s operational structure

also reports unallocated corporate expenses.

Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc.

Company’s reporting segments consist of Security, Industrial Services and Aerospace and Defense.

Additionally, the Company’s

operational structure also reports unallocated corporate expenses.

Security segment operates under the brand, Vicon Industries, Inc.

(“Vicon”), which provides

36 unchanged sentences

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 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.

of Operations – For the three months ended June 30, 2026, and 2025

Company’s Security segment revenues for the three months ended June 30, 2026, decreased by $1,330,320 or 18% to $6,251,494 from

$7,581,814 for the three months ended June 30, 2025.

This decrease is mainly due to delays in shipping from increased production time

on some of our component products.

The Company is currently purchasing additional inventory to overcome this supply issue.

Company’s Industrial Services segment revenues for the three months ended June 30, 2026, increased by $589,948 or 6%, to $9,973,792

from $9,383,844, for the three months ended June 30, 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

Company’s newly established Aerospace and Defense segment generated revenues of $2,202,305 for the three months ended June 30,

was unallocated revenue to Corporate of $12,619 for the three months ended June 30, 2026.

This revenue is related to the Company’s

investment in digital assets.

Profit for the three months ended June 30, 2026, was $7,696,790 or 42% of revenues as compared to gross profit of $7,370,506 or 43% of

revenues for the three months ended June 30, 2025.

profit in our Security segment was $3,066,481 or 49% of the segment’s revenues for the three months ended June 30, 2026, as compared

to gross profit of $3,953,562 or 52% of the segment’s revenues for the three-month period ended June 30, 2025.

Gross profit in

our security segment decreased mainly due to increased costs on some of our component products, additionally gross profits have been

impacted by tariffs and fuel surcharges on shipping.

The Company has applied for tariff refunds and is waiting on the amount to be refunded.

profit in our Industrial Services segment was $2,702,441 or 27% of the segment’s revenues for the three months ended June 30, 2026,

as compared to gross profit of $3,416,944 or 36% of the segment’s revenues for the three-month period ended June 30, 2025.

profit decreased in the three months ended June 30, 2026, compared to the three months ended June 30, 2025, as the Company works to increase

efficiency for its recent acquisition, Richland, LLC.

profit in the Company’s newly established Aerospace and Defense segment was $1,915,249 or 87% of revenues for the three months

ended June 30, 2026.

and Administrative Expenses

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 administrative expenses, including depreciation and amortization expenses, for the three months ended June 30, 2026, increased $838,400

or 11% to $8,464,742 from $7,626,342 for the three months ended June 30, 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 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%.

and Development expenses for the three months ended June 30, 2026, were $425,190 compared to $386,565 for the three months ended June

30, 2025, an increase of $38,625 or 10%.

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

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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

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.

expense for the three months ended June 30, 2026, was $3,295,351 as compared to $3,934,931 for the three months ended June 30, 2025.

Other expense for the three months ended June 30, 2026, was mainly driven by the change in the fair value of warrant liabilities, and

interest expense.

Other expense for the three months ended June 30, 2025, was mainly driven by the change in the fair value of warrant

for Income Taxes

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.

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 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.

the three months ended June 30, 2026, and 2025, the Company had an income tax benefit from continuing operations of $119,001 and an income

tax expense of $14,035, 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 three months ended June 30, 2026, and 2025, was 2.65% and (0.31)% respectively.

of Operations – For the nine months ended June 30, 2026, and 2025

Company’s Security segment revenues for the nine months ended June 30, 2026, decreased by $12,477,086 or 42% to $17,539,579 from

$30,016,665 for the nine months ended June 30, 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.

products under our Vicon brand during the prior nine-month period ended June 30, 2025.

Company’s Industrial Services segment revenues for the nine months ended June 30, 2026, increased by $3,683,833 or 13%, to $31,622,994

from $27,939,161, for the nine months ended June 30, 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

Company’s newly established Aerospace and Defense segment generated revenues of $3,434,897 for the nine months ended June 30, 2026.

was unallocated revenue to Corporate of $37,418 for the nine months ended June 30, 2026.

This revenue is related to the Company’s

investment in digital assets.

Profit for the nine months ended June 30, 2026, was $20,165,860 or 38% of revenues as compared to gross profit of $25,237,897 or 44%

of revenues for the nine months ended June 30, 2025.

profit in our Security segment was $7,757,943 or 44% of the segment’s revenues for the nine months ended June 30, 2026, as compared

to gross profit of $15,597,177 or 52% of the segment’s revenues for the nine-month period ended June 30, 2025.

Gross profit in

our security segment decreased as a result of the large sale mentioned above, additionally gross profits have been impacted by increased

costs, tariffs and fuel surcharges on shipping.

The Company is currently evaluating the potential impact of tariff refunds on future

gross profit percentages.

profit in our Industrial Services segment was $9,934,435 or 31% of the segment’s revenues for the nine months ended June 30, 2026,

as compared to gross profit of $9,640,720 or 35% of the segment’s revenues for the nine-month period ended June 30, 2025.

profit increased in the nine months ended June 30, 2026, compared to the nine months ended June 30, 2025, mainly due to the acquisition

of Richland, LLC.

profit in the Company’s newly established Aerospace and Defense segment was $2,436,064 or 71% of revenues for the nine months ended

June 30, 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 administrative expenses, including depreciation and amortization expenses, for the nine months ended June 30, 2026, increased $3,373,343

or 16% to $24,863,716 from $21,490,373 for the nine months ended June 30, 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

and Development expenses for the nine months ended June 30, 2026, were $1,473,483 compared to $2,054,537 for the nine months ended June

30, 2025, a decrease of $581,054, or 28%.

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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

discussed in Note 1 of this 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.

1 unchanged sentence

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.

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

expense for the nine months ended June 30, 2026, was $17,343,292, as compared to $26,095,977 for the nine months ended June 30, 2025.

Other expense for the nine months ended June 30, 2026, was mainly driven by interest expense related to the discount on common shares

issued for the relief on notes payable, loss on the exercise of warrant liabilities, and the change in the fair value of the Company’s

digital assets.

Other expense for the nine months ended June 30, 2025, was mainly driven by the loss on excess fair value of warrant

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,

the nine months ended June 30, 2026, and 2025, the Company had income tax expense from continuing operations of $221,184 and $245,098,

respectively.

2 unchanged sentences

The Company’s effective tax rate

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

for the nine months ended June 30, 2026, and 2025, was (0.94%) and (1.00%) respectively.

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

1 unchanged sentence

and Capital Resources

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

capital was $13,155,389 at June 30, 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.

equivalents and restricted cash of $9,301,740 at June 30, 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.

used by operating activities for the nine months ended June 30, 2026, was $4,900,015 compared to providing $3,410,782 for the nine months

ended June 30, 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

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

expenses, and deferred revenues.

receivables decreased by $613,244 or 5% to $12,520,180 at June 30, 2026, from $13,133,424 at September 30, 2025.

The decrease in trade

receivables is attributable to the decrease in sales in the Security segment.

used by investing activities for the nine months ended June 30, 2026, was $13,278,551 compared to $1,482,232 for the nine months ended

June 30, 2025.

Investing activities for the nine months ended June 30, 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

activities for the nine months ended June 30, 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 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.

provided by financing activities for the nine months ended June 30, 2026, was $21,151,864 compared to $1,117,811 for the nine months

ended June 30, 2025.

Financing activities for the nine months ended June 30, 2026, were primarily driven by the proceeds from equity

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

activities for the nine months ended June 30, 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

1 unchanged sentence

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

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

has $9,301,740 in cash and cash equivalents and restricted cash as of June 30, 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.

of credit for its Vicon brand to fund operations, which as of June 30, 2026, has available capacity of approximately $622,106, (ii) continually

reevaluate our pricing model on our Vicon brand to improve margins on those products, (iii) raised $5,787,831 through the exercise of

our Series B warrants during the nine months ended June 30, 2026 (iv) raised $10,000,000 in gross proceeds in equity offering during

the nine months ended June 30, 2026.

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

17 unchanged sentences

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