NOTE 7 – TRANSACTION DURING THE PERIOD

On April 13, 2026, the Company entered into and simultaneously closed on a Stock Purchase & Assignment Agreement (the “DFSL SPA”) with Mandragola, pursuant to which the Company exercised the Option and purchased from Mandragola 100% of Mandragola’s shareholdings in DFSL, representing 60% of the issued and outstanding voting equity capital of DFSL on a fully diluted basis (the “Purchased Shares”). The closing of the DFSL SPA occurred simultaneously with its execution and delivery.

In consideration for the Purchased Shares, the Company agreed to the following consideration to Mandragola:

The shares of Common Stock and the Common Stock issuable upon conversion of the Note and exercise of the remainder of the Pre-Funded Warrants and Five Year Warrant is subject to obtaining approval of the Company’s stockholders (“Stockholder Approval”) as required by the applicable rules and regulations of the NYSE American LLC. A special meeting of the Company’s shareholders has been scheduled for August 25, 2026 to obtain Stockholder Approval.

Revenue Bonus

As additional consideration, the Company agreed that in the event that DFSL records annual revenues of Twenty-Five Million Dollars ($25,000,000) or more in any fiscal year on or after fiscal year 2027, Mandragola shall be entitled to a bonus payment equal to five percent (5%) of such recorded annual revenues for such fiscal year. The bonus is payable, at the sole discretion of the Company, in restricted shares of Common Stock (valued at the volume-weighted average price for the ten (10) trading days immediately preceding the date of payment) or cash, within sixty (60) days following the completion of DFSL’s audited financial statements for the applicable fiscal year.

Put and Call Arrangements over the Non-Controlling Interest in DFSL

In connection with the acquisition of 60% of DFSL, the Company was assigned the rights and assumed the obligations of Mandragola Ltd. under a Shareholders Agreement dated March 31, 2026 among Mandragola, DFSL and Dr. Yaacov Frucht, including put and call arrangements over the remaining 40% of DFSL held by Dr. Frucht.

Under these arrangements, at any time after the second anniversary of the Shareholders Agreement, Dr. Frucht has the right to require the Company to purchase either an additional 20% of DFSL or all of his remaining shares at the Option Exercise Price (as defined below). If the resulting implied enterprise value would be less than the enterprise value implied at closing (US$2,166,667), and DFSL has achieved cumulative sales of US$1,500,000 for the years 2026 and 2027, Dr. Frucht may instead exercise this put at a price based on the closing enterprise value, or US$433,333 per 20% interest, applied pro rata. At any time after the fourth anniversary, Dr. Frucht may require the Company to purchase all of his remaining shares at the Option Exercise Price, subject to achievement of the sales target described above unless the failure to achieve it was primarily caused by actions contrary to DFSL’s agreed business plan. In addition, if within 18 months following the closing DFSL approves a material change to its agreed business plan that is reasonably expected to reduce the sales target by at least 25%, Dr. Frucht may exercise his put option on a pro rata basis corresponding to the ratio of DFSL’s actual revenues to the sales target.

The Company holds corresponding call rights: at any time after the third anniversary, the Company is entitled to purchase an additional 20% of DFSL at the greater of US$800,000 or the Option Exercise Price, and at any time after the fourth anniversary, to purchase all remaining shares held by Dr. Frucht at the Option Exercise Price. Each put and call option expires if not exercised within 60 days following the fourth anniversary of the Shareholders Agreement.

“Option Exercise Price” means the average EBITDA of DFSL for the two fiscal years immediately preceding exercise, multiplied by 6.8, multiplied by the percentage of shares purchased. EBITDA for this purpose excludes management fees, administrative charges and other costs imposed by the Company or its affiliates that are not directly related to DFSL. The Company estimated the fair value of the above option to be immaterial.

Credit Line

Mandragola also agreed to provide to the Company a credit line in an amount and on terms to be mutually agreed upon, to be utilized for the development and expansion of the business of DFSL and the payment of DFSL’s third-party debts. See below.

The acquisition has been accounted for as a business combination under ASC 805, Business Combinations. The Company determined that DFSL constitutes a business as defined under ASC 805 as the acquired set includes inputs, processes, and the ability to generate outputs.

The Company, with the assistance of a third-party specialist, calculated the total consideration at $10,226. The fair value of the share issued was determined at $2,427 based on the share price of Company’s common stock as of the date of the closing. The fair value of the promissory notes issued was determined at $3,271.

The fair value of the Pre-Funded Warrant was calculated using the Black Scholes option pricing model. The assumptions used to perform the calculations are detailed below:

The fair value of the Common Warrant was calculated using the Black Scholes option pricing model. The assumptions used to perform the calculations are detailed below:

The Company evaluated the Pre-Funded Warrant and the Common Warrant under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. The Company concluded that, except for the stockholder approval condition, both instruments meet the criteria for equity classification. The Common Warrant and a portion of the Pre-Funded Warrant are subject to stockholder approval at the general meeting scheduled for August 25, 2026. As such approval had not been obtained as of the reporting date, the Company classified the affected warrants as liabilities until the required stockholder approval is obtained.  

The table below summarizes the fair value of assets acquired and liabilities assumed following the adjustments mentioned above as of the acquisition date:

As of June 30, 2026, the purchase price allocation is preliminary and subject to change upon completion of the valuation of the identifiable assets acquired, liabilities assumed and non-controlling interest.

ZorroNet develops and deploys proprietary AI-powered computer vision and autonomous surveillance systems for defense, homeland security and critical infrastructure protection. Its smart software platform performs real-time autonomous threat detection, object recognition, perimeter intrusion identification and automated event-triggered response, with native integration into unmanned aerial systems (UAS/drones), alarm networks and command-and-control (C2) systems. ZorroNet’s technology is operationally deployed at Israel Defense Forces (IDF) bases, military security operations centers and critical national infrastructure sites, with active engagements with Elbit Systems Ltd (TASE/Nasdaq: ESLT) and other top Israel’s preeminent defense prime contractors.

As consideration, the Company issued to Water IO: (i) 1,300,000 shares of common stock; and (ii) a non-convertible promissory note in the amount of $1,250,000, bearing interest at the short-term applicable federal rate, payable July 7, 2026. The note is non-convertible and will not result in any additional dilution to existing stockholders.

The Company also assumed certain obligations to ZorroNet’s founders, including a performance-based earnout payable by March 31, 2027 equal to the greater of 125% of ZorroNet’s 2026 consolidated revenue or 8x 2026 consolidated EBITDA, and a commitment to retain key ZorroNet personnel for three years on no less favorable terms.

The Company has agreed to file a registration statement with the SEC within 45 days of closing covering the resale of the shares issued to Water IO, which registration statement was filed and declared effective by the SEC on July 13, 2026.

The acquisition has been accounted for as a business combination under ASC 805, Business Combinations. The Company determined that ZorroNet constitutes a business as defined under ASC 805 as the acquired set includes inputs, processes, and the ability to generate outputs.

The Company, with the assistance of a third-party specialist, calculated the total consideration at $6,695. The fair value of the share issued was determined at $3,757 based on the share price of Company’s common stock as of the date of the closing. The fair value of the promissory notes issued was determined at $1,243. The performance-based earnout payable was calculated by the third party at $1,695.

The table below summarizes the fair value of assets acquired and liabilities assumed following the adjustments mentioned above as of the acquisition date:

As of June 30, 2026, the purchase price allocation is preliminary and subject to change upon completion of the valuation of the identifiable assets acquired, liabilities assumed and non-controlling interest.

Certain amounts previously advanced by Mandragola in connection with the Company’s acquisitions of DFSL and Zorronet were treated as advances under the Credit Facility. As of June 30, 2026, no principal amount was outstanding under the Credit Facility and the undrawn availability was $2,000. The Company did not recognize a liability for the undrawn portion of the Credit Facility.

As additional consideration for making the Credit Facility available, on May 13, 2026, the Company issued Mandragola a five-year warrant to purchase up to 2,000,000 shares of the Company’s common stock at an initial exercise price of $12.00 per share, subject to customary adjustments (the “Warrant”). The Warrant may be exercised for cash only when the trading price of the Company’s common stock exceeds the applicable exercise price. The holder may also elect, at any time, to exercise the Warrant on a cashless basis and receive a variable number of shares determined pursuant to a contractual formula based on a prescribed Black-Scholes value divided by the market price of the Company’s common stock. The contractual Black-Scholes value uses, among other inputs, expected volatility of 175% and a deemed remaining term of five years, irrespective of the actual remaining contractual term.

The Warrant also provides that, upon certain fundamental transactions, the holder may require the Company or a successor entity to purchase the Warrant for cash in an amount determined pursuant to a contractual Black-Scholes formula. The Warrant is subject to a 4.99% beneficial ownership limitation, and the shares issuable upon exercise are subject to applicable NYSE American stockholder approval requirements.

The exercise of the Warrant is subject to stockholder approval and a meeting of stockholders requesting such approval has been scheduled for August 25, 2026. As such approval had not been obtained as of June 30, 2026, these warrants are not deemed to be legally in effect until (and subject to) such stockholder approval is in fact obtained. Therefore, the Company concluded that the accounting impact associated with the Warrant will be recognized upon receipt of the required stockholder approval.

On April 15, 2026, Zorronet, entered into a framework supply agreement (the “Agreement”) with Israel Railways Ltd. (“Israel Railways”), the state-owned principal railway company responsible for all inter-city, commuter, and freight rail transport in Israel, pursuant to which Zorronet will supply Israel Railways with AI-powered animal detection and deterrence alert stations (the “Alert Stations”), together with related installation, maintenance, and support services, across Israel Railways’ rail facilities and compounds.

The Agreement follows the successful completion of a large-scale pilot program conducted by Zorronet and Israel Railways over the preceding year, in which Israel Railways invested approximately NIS 800,000 (approximately $266,000). The pilot deployed Zorronet’s AI-powered detection and deterrence technology in designated sections of Israel Railways’ rail network and achieved a success rate of approximately 98% in keeping large animals, including wild boar, foxes, and gazelles, off of the railway tracks in the sections in which the technology was deployed, thereby preserving ecological corridors and reducing damage to infrastructure. Following completion of the pilot, Zorronet and Israel Railways entered into a memorandum of understanding confirming the pilot’s success and Israel Railways’ intention to expand deployment of the technology to additional areas. The platform was adapted to Israel Railways’ operational requirements in collaboration with its innovation division.

Under the Agreement, Zorronet will provide the setup, supply, and installation of said alert stations c and ongoing maintenance services for the alert stations and the system management platform, including software and hardware updates, repairs, and service calls.

The initial term of the Agreement is twelve (12) months from execution, with Israel Railways holding the sole option to extend the Agreement for an additional twelve (12) months. Israel Railways may terminate the Agreement for any reason upon thirty (30) days’ prior written notice.

The Agreement provides for per-station pricing based on a pricing schedule attached to the Agreement. In the initial phase, the Company expects the Agreement to cover the maintenance and upgrade of fifteen (15) existing Alert Stations previously installed by Zorronet at Israel Railways facilities, with additional new stations that may be ordered at Israel Railways’ sole discretion thereafter. Israel Railways is not obligated to order any minimum quantity beyond the existing stations and will place purchase orders in accordance with its operational needs and sole discretion. Payment is due within forty-five (45) days of invoice submission, subject to Israel Railways’ approval.

The Agreement includes comprehensive confidentiality provisions, insurance requirements (including third-party liability, employer liability, and professional liability) and cybersecurity and data protection obligations, among other standard provisions. Under the Agreement, Zorronet is required to continue performing its obligations during emergency situations (including war, home front emergencies, and mass casualty events) at no additional charge; failure to do so constitutes a material breach.

In addition, Israel Railways has an option from November 2023 to complete an equity investment in Zorronet of up to One Million United States Dollars ($1,000,000) for 20% of Zorronet, which, if exercised in full, would represent an approximate twenty percent (20%) interest in Zorronet on a post-investment basis (the “Investment Option”). By its terms, the exercise of the Investment Option is subject to the success of the said pilot. As of the date of this report, Israel Railways has not exercised the Investment Option.