Annual Report for Fiscal Year Ending September 30, 2025 (Form 10-K)

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

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company's management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. Company management has identified certain accounting policies that are significant to the preparation of its financial statements. These accounting policies are important for an understanding of the Company's financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. Company management believes the following critical accounting policies involve the most significant estimates and judgments used in the preparation of its financial statements. Company management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors.

Inventory and Cost of Goods Sold

The Company values inventory, consisting of finished goods, at the lower of cost or net realizable value. Cost is determined on the average cost method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, and (iii) competitive pricing pressures.

The Company classifies inventory markdowns in the income statement as a component of cost of goods sold. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand, or competition differ from expectations.

There was $1,034,798 and $1,044,530 in inventory obsolescence reserves at September 30, 2025, and 2024, respectively.

Revenue Recognition

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers (Topic "ASC 606"). Under the guidance of the standard, revenue represents the amount received or receivable for goods and services supplied by the Company to its customers. Company recognizes revenue at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Most of the Company's sales arrangements with customers in the Security segment are short-term in nature involving single performance obligations related to the delivery of goods and generally provide for transfer of control at the time of shipment to the customer. Additionally, the Company issues additional licenses for its proprietary software. These licenses have terms of 1, 3, and 5 years. The Company records deferred revenue and recognizes the revenue over the period of the license. The transaction price is a negotiated price with each customer and is allocated to its performance obligations based on stand-alone selling price. The Company generally permits returns of product or repaired equipment due to defects; however, returns are historically insignificant. Billing terms vary by customer and product but generally do not exceed 90 days.

In accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue from cost reimbursable contracts based on the services provided, typically represented by man-hours worked, and is measured by reference to agreed charge-out rates or to the estimated total contract revenue. Revenue from long-term fixed price contracts is recognized using the percentage-of-completion method, measured by reference to physical completion or the ratio of costs incurred to total estimated contract costs. If the outcome of a contract cannot be estimated reliably, as may be the case in the initial stages of completion of the contract, revenue is recognized only to the extent of the costs incurred that are expected to be recoverable. If a contract is expected to be loss-making, the expected amount of the loss is recognized immediately in the income statement. Revenue from short-term contracts is recognized when delivery has occurred, and collection of the resulting receivable is deemed probable. Timing of revenue recognition may differ from the timing of invoicing to customers.

The Company records deferred revenue when receiving cash in advance of delivering services to the customer. The deferred revenue is reversed, and revenue is recognized when those services are delivered. The amounts were $1,866,014, $1,955,635, and $2,311,334, as of September 30, 2025, 2024, and 2023 respectively, recorded as Deferred revenue. Short-term deferred revenue of $1,383,036 is expected to be recognized over the next 12 months.

The Company records a liability when receiving cash in advance of delivering goods to the customer. The revenue is recognized, and the deposit is applied to the invoice for those goods when those goods are delivered. The company recorded Deposits from customers of $158,344, $408,415, and $57,434, as of September 30, 2025, 2024, and 2023, respectively. These amounts are short-term and are expected to be recognized over the next 12 months.

Contracts

The Company's industrial services segment's revenue is derived from contracts with customers. These contracts fall into two categories, "Fixed Price" and "Time and Material Price" contracts. The Company determines the appropriate accounting treatment for each contract at its inception. Generally, contracts have a period from six months to two years.

The Company accounts for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. The Company considers the start of a project to be when the above criteria have been met and it has written authorization from the customer to proceed.

Fixed price contracts

The Company's revenue from fixed price contracts is recognized on the percentage-of-completion method, measured by the percentage of costs incurred to estimated total costs for each contract. When the job is started and in process, all actual costs incurred (labor and materials) are processed and reconciled at month end. The percentage of completion and revenue earned is calculated at month end. Billings are created based on contract criteria agreed upon and reconciled to determine if any costs in excess of billing or billings in excess of costs exist. Changes in job performance, job conditions, estimated contract costs and profitability, and final contract settlements may result in revisions to costs and income. The effects of these revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments.

Time and material price contracts

Revenue from time and material price contracts is recognized based on costs incurred and projected markup on costs. Revenue from these contracts will vary based on actual labor, materials and overhead costs charged to the job and the negotiated billing rates. Contracts are initiated by customers or through bids if with a municipality. Any materials used and time spent within the shop on the job is assigned to the appropriate job and reconciliated monthly. Management bills the customer and records the revenue earned from contract. Depending on the contract terms, billings could be based on certain milestones stipulated in the contract. If this is the case, unbilled revenue is recorded at month end based on time and materials incurred and markup.

Performance Obligations

Generally, the Company's contracts contain one performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. The Company's performance of the contracts with customers typically provides a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units), and as such, the entire contract and/or purchase order is accounted for as one performance obligation. The transaction price is allocated to the performance obligation and recognized as revenue when, or as, the performance obligation is satisfied with the continuous transfer of control to the customer.

Less commonly, a contract may be considered to have multiple performance obligations even when they are part of a single contract. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.

The Company recognizes revenue over time for the majority of the services it performs as (i) control continuously transfers to the customer as work progresses at a project location controlled by the customer and (ii) the Company has the right to bill the customer as costs are incurred.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance in ASC 480 (Topic 480, Distinguishing Liabilities from Equity) and ASC 815 (Topic 815, Derivatives and Hedging). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common shares and whether the warrant holders could potentially require "net cash settlement" in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss in the Company's Consolidated Statements of Operations.

Valuation of Goodwill

The Company 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.

At September 30, 2025, the Company had $3,708,347 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. If 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.

Assessing 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.

For the year September 30, 2025, no impairment of the Company's goodwill was recorded. For the year ended September 30, 2024, the Company recorded $530,475 of impairment for Goodwill in the Security Segment.

Related Parties

During 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 financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved b. description 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 statements; c. 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; and d. 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.

Income Taxes

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and the expected benefits of net operating loss carryforwards. The impact of changes in tax rates and laws on deferred taxes, if any, applied during the period in which temporary differences are expected to be settled, is reflected in the Company's financial statements in the period of enactment. The measurement of deferred tax assets is reduced, if necessary, if, based on weight of the evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized. The Company had no material amounts recorded for uncertain tax positions, interest, or penalties in the accompanying financial statements.

Results of Operations - For the fiscal years ending September 30, 2025, and 2024

Revenues

Our Security segment revenues for the year ended September 30, 2025, increased by $6,376,893 or 20%, to $38,398,792 from $31,021,899 for the year ended September 30, 2024. This increase is due to a large sale valued at $10,375,000 for security technology products under our Vicon brand. This sale represents 27% of the revenue for this segment for the year ended September 30, 2025.

Our Industrial Services segment revenues for the year ended September 30, 2025, increased by $3,237,544 or 9%, to $38,079,529 from $34,841,985 for the year ended September 30, 2024. This increase is mainly due to an increased demand for the segment's products and services.

There was unallocated revenue under the Corporate segment of $9,767 for the year ended September 30, 2025. This revenue is related to the Company's investment in digital assets during the fourth quarter of the year.

Gross Profit

Gross profit for the year ended September 30, 2025, was $32,288,526 or 42% of revenues as compared to gross profit of $27,478,204 or 41% of revenues for the year ended September 30, 2024.

Gross profit in our Security segment was $19,085,754 or 50% of the segment's revenues for the year ended September 30, 2025, as compared to gross profit of $16,167,339 or 50% of the segment's revenues for the year ended September 30, 2024. Gross profit as a percentage of revenue remained consistent in the year ended September 30, 2025, compared to the year ended September 30, 2024.

Gross profit in our Industrial Services segment was $13,193,005 or 35% of the segment's revenues for the year ended September 30, 2025, as compared to gross profit of $11,310,865 or 32% of the segment's revenues for the year ended September 30, 2024. Gross profit as a percentage of revenues increased in the year ended September 30, 2025, compared to the year ended September 30, 2024, and was primarily due to due to improved margins on projects during the year.

Gross profit on the Corporate revenue for the year ended September 30, 2025, was 9,767, or 100% of those revenues.

General and Administrative Expenses

General and Administrative Expenses for the year ended September 30, 2025, increased by $565,541 or 2% to $29,425,560 from $28,860,019 for the year ended September 30, 2024. The increase in general and administrative expenses is mainly due to increases in depreciation, insurance, rent and utilities, with insurance, rent and utilities being the result of the new office established in Springfield NJ, and fringe benefits due to increased premiums for employee benefit programs.

Research and Development Expenses

Research and Development expenses decreased by $1,004,315 or 30% to $2,353,140 from $3,357,455, for the years ended September 30, 2024, and 2024, 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 have now come to market.

Goodwill Impairment

For the year ended September 30, 2025, the Company recorded no goodwill impairment. For the year ended September 30, 2024, the Company recognized a goodwill impairment charge of $530,475 related to its Security Segment. Goodwill is tested annually for impairment or if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Other Expense, net

Other expense for the year ended September 30, 2025, was $27,823,914 as compared to $2,206,604 for the year ended 2024. Other expense for the year ended September 30, 2025, was mainly driven by interest expense on the Company's debt, loss on the excess fair value of the Company's Series A and Series B Warrants exercised during the year, and by the changes in the fair value of the Series A and Series B warrants outstanding at September 30, 2025. Other expense for the year ended September 30, 2024, was mainly driven by interest expense on the Company's debt, issuance costs of $995,333, related to the May 2024 Equity Financing, and loss on the excess fair value of certain prefunded warrants issued in May 2024, offset by the changes in the fair value of the Series A and Series B warrants outstanding at September 30, 2024.

Income Tax Expense

During the fiscal year of 2025 we recorded an income tax expense of $734,880 compared to $202,280 for fiscal year 2024. 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 $5,184,339 at September 30, 2025, compared to $8,103,457 at September 30, 2024. This includes cash and cash equivalents and restricted cash of $6,347,041 at September 30, 2025, and $5,420,392 at September 30, 2024, respectively. The decrease in working capital was primarily due to the increase in the Company's current maturities of long-term liabilities of $4,193,120, a result of the timing of the Company notes payable coming due and a decrease in the Company's trade receivables from related parties of $280,295 and a decrease in inventory of $403,585.

Operating activities for continuing operations provided $159,315 of cash for the year ended September 30, 2025, compared to using $3,949,360 cash for the year ended September 30, 2024.

Non-cash adjustments to net loss for the year ended September 30, 2025, were $29,970,888 as compared to $4,822,544 for the year ended September 30, 2025. For fiscal year 2025, the main drivers to this adjustment were depreciation and amortization, loss on the excess value of warrants, and the fair value change in warrant liabilities. For fiscal year 2024, the main drivers for this adjustment were depreciation and amortization, loss on the excess value of warrants, and related party write-offs.

Trade receivables increased by $1,973,748 or 18% to $13,133,424 at September 30, 2025, from $11,159,676 at September 30, 2024. The increase in trade receivables is mainly due to increased revenues.

Investing activities for continuing operations used $2,960,739 of cash during the year ended September 30, 2025, compared to $1,257,393 used in the year ended September 30, 2024. Investing activities for fiscal year 2025 were mainly driven by the purchase of property and equipment and investment in digital assets. Investing activities for fiscal year 2024 were mainly driven by the purchase of property and equipment.

Financing activities provided $4,075,261 of cash for the year ended September 30, 2025, as compared to $4,398,599 provided in the year ended September 30, 2024. In fiscal 2025 our financing activities were mainly comprised of proceeds from the Company's equity public offering and notes payable, proceeds from warrant exercises, payments on debt, and activity on the revolving line of credit. In fiscal 2024 our financing activities were mainly comprised of proceeds from the Company's equity public offerings, payments on debt, and activity on the revolving line of credit.

The Company has incurred substantial losses of $28,112,368 and $7,229,491 for fiscal years 2025 and 2024, respectively, and has debt obligations over the next fiscal year of $12,101,593 and working capital of $5,184,339, that raise substantial doubt with respect to the Company's ability to continue as a going concern, as discussed in Item 1A of this Form 10-K.

Subsequent to September 30, 2025, the Company completed several financing and capital transactions that have significantly improved liquidity and reduced debt:

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In December 2025, the Company received $5,657,264 million in gross proceeds from Series B Warrant exercises and issued 2,316,480 shares of common stock upon exercise.

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On December 8, 2025, the Company issued 2,500,609 shares of common stock to satisfy $6,084,000 of outstanding debt.

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On December 11, 2025, the Company raised $2,000,000 gross ($1,950,000 net) in a registered direct offering.

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On December 23, 2025, the Company raised $2,000,000 gross ($1,950,000 net) in a registered direct offering.

These transactions provided approximately $9.6 million in gross cash proceeds and reduced debt by $6.084 million, significantly improving short-term liquidity and supporting ongoing operations and potential acquisitions.