CEMTREX INC 10-Q

Item 1. Financial Statements Cemtrex, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) March 31, September 30, 2023 2022 Assets Current assets Cash and equivalents $ 6,634,037 $ 9,895,761 Restricted cash 645,297 1,577,915 Short-term investments 13,663 13,721 Trade receivables, net 7,271,488 5,399,216 Trade receivables - related party 408,464 - Trade receivables, net 408,464 - Inventory –net of allowance for inventory obsolescence 8,561,026 8,487,817 Prepaid expenses and other assets 2,588,400 2,421,644 Assets of discontinued operations - 3,971,693 Total current assets 26,122,375 31,767,767 Property and equipment, net 5,052,796 5,280,442 Right-of-use assets 2,297,293 2,641,198 Royalties receivable - related party 678,330 - Note receivable - related party 761,585 761,585 Goodwill 3,906,891 3,906,891 Other 1,584,910 1,399,745 Total Assets $ 40,404,180 $ 45,757,628 Liabilities & Stockholders’ Equity Current liabilities Accounts payable $ 3,307,521 $ 3,050,937 Accounts payable - related party 3,368 19,133 Accounts payable Short-term liabilities 16,441,488 16,894,743 Lease liabilities - short-term 732,680 754,495 Deposits from customers 74,762 73,144 Accrued expenses 3,062,806 2,271,188 Deferred revenue 2,058,661 1,551,088 Accrued income taxes 57,150 94,848 Liabilities of discontinued operations - 805,219 Total current liabilities 25,738,436 25,514,795 Long-term liabilities Loans payable to bank 73,407 110,331 Long-term lease liabilities 1,564,613 1,822,468 Notes payable 1,604,743 - Mortgage payable 2,125,864 2,160,169 Other long-term liabilities 575,900 807,898 Paycheck Protection Program Loans 70,816 97,120 Deferred Revenue - long-term 581,193 607,309 Total long-term liabilities 6,596,536 5,605,295 Total liabilities 32,334,972 31,120,090 Commitments and contingencies - - Shareholders’ equity Preferred stock , $ 0.001 par value, 10,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,183,463 shares issued and 2,119,363 shares outstanding as of March 31, 2023 and 2,079,122 shares issued and 2,015,022 shares outstanding as of September 30, 2022 (liquidation value of $ 10 per share) 2,183 2,079 Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at March 31 31, 2023 and September 30, 2022 50 50 Common stock, $ 0.001 par value, 50,000,000 shares authorized, 828,570 shares issued and outstanding at March 31, 2023 and 754,711 shares issued and outstanding at September 30, 2022 828 755 Additional paid-in capital 67,042,743 66,641,698 Accumulated deficit ( 61,801,025 ) ( 54,929,020 ) Treasury stock, 64,100 shares of Series 1 Preferred Stock at March 31, 2023 and September 30, 2022 ( 148,291 ) ( 148,291 ) Accumulated other comprehensive income 2,283,876 2,377,525 Total Cemtrex stockholders’ equity 7,380,364 13,944,796 Non-controlling interest 688,844 692,742 Total liabilities and shareholders’ equity $ 40,404,180 $ 45,757,628 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Cemtrex, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022 For the three months ended For the six months ended March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022 Revenues $ 16,073,397 $ 11,746,017 $ 28,043,639 $ 21,159,412 Cost of revenues 8,734,916 7,976,236 15,662,543 14,167,381 Gross profit 7,338,481 3,769,781 12,381,096 6,992,031 Operating expenses General and administrative 5,318,267 5,424,669 10,482,605 10,713,844 Research and development 1,615,341 1,239,334 3,445,054 2,471,008 Total operating expenses 6,933,608 6,664,003 13,927,659 13,184,852 Operating income/(loss) 404,873 ( 2,894,222 ) ( 1,546,563 ) ( 6,192,821 ) Other income/(expense) Other income 376,504 90,922 359,421 1,021,060 Interest expense ( 1,335,138 ) ( 1,313,483 ) ( 2,463,372 ) ( 2,715,887 ) Total other expense, net ( 958,634 ) ( 1,222,561 ) ( 2,103,951 ) ( 1,694,827 ) Net loss before income taxes ( 553,761 ) ( 4,116,783 ) ( 3,650,514 ) ( 7,887,648 ) Income tax benefit/(expense) - - - - Loss from Continuing operations ( 553,761 ) ( 4,116,783 ) ( 3,650,514 ) ( 7,887,648 ) Income/(loss) from discontinued operations, net of tax 14,232 ( 685,140 ) ( 3,225,389 ) ( 1,444,098 ) Net loss ( 539,529 ) ( 4,801,923 ) ( 6,875,903 ) ( 9,331,746 ) Less income/(loss) in noncontrolling interest 55,265 ( 80,676 ) ( 3,898 ) ( 132,548 ) Net loss attributable to Cemtrex, Inc. shareholders $ ( 594,794 ) $ ( 4,721,247 ) $ ( 6,872,005 ) $ ( 9,199,198 ) Income (loss) per share - Basic & Diluted Continuing Operations $ ( 0.75 ) $ ( 5.86 ) $ ( 4.63 ) $ ( 11.51 ) Discontinued Operations $ 0.02 $ ( 1.00 ) $ ( 4.09 ) $ ( 2.14 ) Weighted Average Number of Shares-Basic & Diluted 815,498 688,255 788,265 673,943 Weighted Average Number of Shares-Diluted 815,498 688,255 788,265 673,943 4 Condensed Consolidated Statements of Comprehensive Loss (Unaudited) March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022 For the three months ended For the six months ended March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022 Other comprehensive income (loss) Net loss $ ( 539,529 ) $ ( 4,801,923 ) $ ( 6,875,903 ) $ ( 9,331,746 ) Foreign currency translation loss ( 317,218 ) ( 199,623 ) ( 93,649 ) ( 140,131 ) Comprehensive loss ( 856,747 ) ( 5,001,546 ) ( 6,969,552 ) ( 9,471,877 ) Less comprehensive (loss) income attributable to noncontrolling interest ( 55,265 ) 80,676 3,898 132,548 Comprehensive loss attributable to Cemtrex, Inc. shareholders $ ( 801,482 ) $ ( 5,082,222 ) $ ( 6,973,450 ) $ ( 9,604,425 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Cemtrex, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) Preferred Stock Series 1 Preferred Stock Series C Common Stock Par Treasury Stock, 64,100 shares of Accumulated Par Value $0.001 Par Value $0.001 Value $0.001 Additional Series 1 other Cemtrex Non- Number of Number of Number of Paid-in Accumulated Preferred Comprehensive Stockholders’ controlling Shares Amount Shares Amount Shares Amount Capital Deficit Stock Income(loss) Equity interest Balance at September 30, 2022 2,079,122 $ 2,079 50,000 $ 50 754,711 $ 755 $ 66,641,698 $ ( 54,929,020 ) $ ( 148,291 ) $ 2,377,525 $ 13,944,796 $ 692,742 Foreign currency translation gain/(loss) - - - 223,569 223,569 Share-based compensation 39,842 39,842 Shares issued to pay notes payable 39,016 39 232,106 232,145 Dividends paid in Series 1 preferred shares 104,341 104 ( 104 ) - Income/(loss) attributable to noncontrolling interest - ( 59,163 ) Net loss - ( 6,277,211 ) - ( 6,277,211 ) Balance at December 31, 2022 2,183,463 $ 2,183 50,000 $ 50 793,727 $ 794 $ 66,913,542 $ ( 61,206,231 ) $ ( 148,291 ) $ 2,601,094 $ 8,163,141 $ 633,579 Foreign currency translation gain/(loss) - - - ( 317,218 ) ( 317,218 ) - Share-based compensation 26,735 26,735 Additional rounding shares issued for reverse stock split 19,314 19 ( 19 ) - Income/(loss) attributable to noncontrolling interest - 55,265 Shares issued to pay for services 15,529 15 102,485 102,500 Net loss - - - - ( 594,794 ) - - ( 594,794 ) - Balance at March 31, 2023 2,183,463 $ 2,183 50,000 $ 50 828,570 $ 828 $ 67,042,743 $ ( 61,801,025 ) $ ( 148,291 ) $ 2,283,876 $ 7,380,364 $ 688,844 Ending balance value 2,183,463 $ 2,183 50,000 $ 50 828,570 $ 828 $ 67,042,743 $ ( 61,801,025 ) $ ( 148,291 ) $ 2,283,876 $ 7,380,364 $ 688,844 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Cemtrex, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders’ Equity (Continued) (Unaudited) Shares Amount Shares Amount Shares Amount Capital Deficit Stock Income(loss) Equity interest Preferred Stock Series 1 Preferred Stock Series C Common Stock Par Treasury Stock, 64,100 shares of Accumulated Par Value $0.001 Par Value $0.001 Value $0.001 Additional Series 1 other Cemtrex Non- Number of Number of Number of Paid-in Accumulated Preferred Comprehensive Stockholders’ controlling Shares Amount Shares Amount Shares Amount Capital Deficit Stock Income(loss) Equity interest Balance at September 30, 2021 1,885,151 $ 1,885 50,000 $ 50 593,777 $ 594 $ 61,748,022 $ ( 41,908,062 ) $ ( 148,291 ) $ 2,896,452 $ 22,590,650 $ 964,026 Foreign currency translation gain/(loss) 59,492 59,492 Share-based compensation 45,371 45,371 Shares issued to pay notes payable 82,600 83 3,287,988 3,288,071 Dividends paid in Series 1 preferred shares 94,602 95 ( 95 ) - Income/(loss) attributable to noncontrolling interest - ( 51,872 ) Net loss - ( 4,477,951 ) - ( 4,477,951 ) Balance at December 31, 2021 1,979,753 $ 1,980 50,000 $ 50 676,377 $ 677 $ 65,081,286 $ ( 46,386,013 ) $ ( 148,291 ) $ 2,955,944 $ 21,505,633 $ 912,154 Foreign currency translation gain/(loss) ( 199,623 ) ( 199,623 ) Share-based compensation 27,046 27,046 Shares issued with note payable 28,571 29 695,371 695,400 Income/(loss) attributable to noncontrolling interest - ( 80,676 ) Net loss - - ( 4,721,247 ) - ( 4,721,247 ) Balance at March 31, 2022 1,979,753 1,980 50,000 $ 50 704,948 706 65,803,703 ( 51,107,260 ) ( 148,291 ) 2,756,321 17,307,209 831,478 Balance at March 31, 2022 1,979,753 1,980 50,000 $ 50 704,948 706 65,803,703 ( 51,107,260 ) ( 148,291 ) 2,756,321 17,307,209 831,478 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Cemtrex, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) For the six months ended March 31, Cash Flows from Operating Activities 2023 2022 Net loss $ ( 6,875,903 ) $ ( 9,331,746 ) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 448,388 610,327 Loss on disposal of property and equipment 64,908 30,558 Noncash lease expense 420,411 293,506 Bad debt expense ( 1,543 ) ( 1,839 ) Share-based compensation 66,577 72,417 Interest expense paid in equity shares 32,145 1,521,992 Accounts payable paid in equity shares 102,500 - Accrued interest on notes payable 1,290,615 329,264 Amortization of original issue discounts on notes payable 883,467 583,333 Gain/(loss) on marketable securities 58 ( 159,905 ) Discharge of Paycheck Protection Program Loans - ( 971,500 ) Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: Trade receivables ( 1,870,729 ) 1,572,113 Trade receivables - related party ( 408,464 ) 14,641 Inventory ( 73,209 ) ( 1,396,073 ) Prepaid expenses and other current assets ( 166,756 ) ( 708,456 ) Other assets ( 185,165 ) ( 78,146 ) Other liabilities ( 231,998 ) ( 17,163 ) Accounts payable 256,584 432,372 Accounts payable - related party ( 15,765 ) - Operating lease liabilities ( 356,176 ) ( 201,578 ) Deposits from customers 1,618 ( 288,503 ) Accrued expenses 791,618 ( 312,693 ) Deferred revenue 481,457 722,975 Income taxes payable ( 37,698 ) ( 312,006 ) Net cash used by operating activities - continuing operations ( 5,383,060 ) ( 7,596,110 ) Net cash provided by operating activities - discontinued operations 2,488,144 133,512 Net cash used by operating activities ( 2,894,916 ) ( 7,462,598 ) Cash Flows from Investing Activities Purchase of property and equipment ( 263,732 ) ( 706,392 ) Proceeds from sale of property and equipment 11,026 230,901 Investment in MasterpieceVR - ( 500,000 ) Proceeds from sale of marketable securities - 176,945 Purchase of marketable securities - ( 4,626,862 ) Net cash used by investing activities - continuing operations ( 252,706 ) ( 5,425,408 ) Net cash provided by investing activities - discontinued operations - ( 2,349 ) Net cash used by investing activities ( 252,706 ) ( 5,427,757 ) Cash Flows from Financing Activities Proceeds from notes payable - 8,000,000 Payments on notes payable ( 544,370 ) ( 901,763 ) Payments on Paycheck Protection Program Loans ( 10,033 ) - Payments on bank loans ( 365,724 ) ( 613,900 ) Net cash (used)/provided by financing activities ( 920,127 ) 6,484,337 Effect of currency translation ( 126,593 ) ( 150,076 ) Net decrease in cash, cash equivalents, and restricted cash ( 4,067,749 ) ( 6,406,018 ) Cash, cash equivalents, and restricted cash at beginning of period 11,473,676 17,186,323 Cash, cash equivalents, and restricted cash at end of period $ 7,279,334 $ 10,630,229 Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash Cash and equivalents $ 6,634,037 $ 8,970,324 Restricted cash 645,297 1,659,905 Total cash, cash equivalents, and restricted cash $ 7,279,334 $ 10,630,229 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Cemtrex, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Continued) (Unaudited) Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 257,145 $ 288,397 Cash paid during the period for income taxes, net of refunds $ 37,698 $ 312,806 Supplemental Schedule of Non-Cash Investing and Financing Activities Shares issued to pay notes payable $ 232,145 $ 3,288,071 Shares issued in connection with note payable $ - $ 700,400 Investment in right of use asset $ 76,506 $ 317,187 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 9 Cemtrex, Inc. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 – ORGANIZATION AND PLAN OF OPERATIONS Cemtrex was incorporated in 1998 in the state of Delaware and has evolved through strategic acquisitions and internal growth into a leading multi-industry company. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries. During the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure consisting of (i) Security (ii) Industrial Services and (iii) Cemtrex Corporate. Security Cemtrex’s Security segment operates under the brand of its majority owned subsidiary, Vicon Industries, Inc. (“Vicon”), which, provides end-to-end security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products include browser-based video monitoring systems and analytics-based recognition systems, cameras, servers, and access control systems for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal and state government offices. Vicon provides innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms. Industrial Services Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), which offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. AIS is a leading provider of reliability-driven maintenance and contracting solutions for machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding. Cemtrex Corporate Cemtrex’s Corporate segment is the holding company of our other two segments. Sale of former Cemtrex Brands On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil. On November 22, 2022, the Company completed the above disposition for the following consideration. ● Cemtrex XR, Inc. ○ $ 895,000 comprised of: ■ $ 75,000 in cash payable at Closing; and ■ 5 % royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next three years; and should the total sum of royalties due be less than $ 820,000 at the end of the three-year period, Purchaser shall be obligated to pay the difference between $ 820,000 and the royalties paid. 10 ● Cemtrex Advanced Technologies, Inc. ○ $ 10,000 in cash payable at Closing; and ○ 5 % royalty of all revenues on the Business to be paid 90 days after the end of each calendar year for the next 5 years ; and ○ $ 1,600,000 in SAFE (common equity) at any subsequent fundraising or exit above $5M with a $10M cap. The Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions and agreements. Common Stock Reverse Stock Split On January 25, 2023, the company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively adjusted for this reverse split. Extension of cure period and Subsequent Compliance Series 1 Preferred Stock On July 29, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s Series 1 preferred stock listed on Nasdaq was below $ 1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $ 1.00 per share (the “Minimum Bid Price Requirement”). On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, it had been granted an additional 180 days or until July 24, 2023, to regain compliance with the Minimum Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. The Company intends to continue actively monitoring the bid price for its Series 1 preferred stock between now and July 24, 2023 and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement. Common Stock On January 24, 2022, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $ 1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $ 1.00 per share (the “Minimum Bid Price Requirement”). On July 26, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC Nasdaq notifying the Company that, it had been granted an additional 180 days or until January 23, 2023, to regain compliance with the Minimum Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has not regained compliance with Listing Rule 5550(a)(2) and accordingly would be delisted from the Capital Market. The Company then requested and had been granted a hearing to occur on March 16, 2023, appealing this determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. 11 On February 8, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has regained compliance with Listing Rule 5550(a)(2) and is in compliance with all applicable listing standards. The Company’s common stock will continue to be listed and traded on The Nasdaq Stock Market. Going Concern Considerations The accompanying condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Pursuant to the requirements of the ASC 205, management must evaluate whether there are conditions or events, considered in the aggregate, which raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company has incurred substantial losses of $ 13,020,958 and $ 7,807,995 for fiscal years 2022 and 2021, respectively, and has losses on continuing operations for the first half of fiscal year 2023 of $ 6,872,005 and has debt obligations over the next year of $ 16,441,488 and working capital of $ 108,939 , that raise substantial doubt with respect to the Company’s ability to continue as a going concern. While our 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 sold unprofitable brands, reducing the cash required to maintain those brands, reevaluated our pricing model on our Vicon brand to improve margins on those products, and has effected a 35:1 reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improve our ability to potentially raise capital through equity offerings that we 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 succeed. 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. The Company currently does not have adequate cash to meet our short or long-term needs. The condensed consolidated financial statements do not include any adjustments relating to this uncertainty. NOTE 2 – INTERIM STATEMENT PRESENTATION Basis of Presentation and Use of Estimates The accompanying unaudited condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2022, of Cemtrex, Inc. 12 The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X pursuant to the requirements of the U.S. Securities and Exchange Commission (‘SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company’s management. The Company evaluates its estimates and assumptions on an ongoing basis. The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Cemtrex Technologies Pvt. Ltd., Advanced Industrial Services, Inc., and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiary, Vicon Industries Ltd. All inter-company balances and transactions have been eliminated in consolidation. Accounting Pronouncements Significant Accounting Policies Note 2 of the Notes to Consolidated Financial Statements, included in the annual report on Form 10-K for the year ended September 30, 2022, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. Recently Issued Accounting Standards In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Update 2016-13”). Update 2016-13 replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. For public business entities, the new standard became effective for annual reporting periods beginning after December 15, 2022, including interim periods within that reporting period. The Company is currently evaluating the impact of this ASU on our financial statements. In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on our financial statements. On June 30, 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which (1) clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. Under current guidance, stakeholders have observed diversity in practice related to whether contractual sale restrictions should be considered in the measurement of the fair value of equity securities that are subject to such restrictions. On the basis of interpretations of existing guidance and the current illustrative example in ASC 820-10-55-52 of a restriction on the sale of an equity instrument, some entities use a discount for contractual sale restrictions when measuring fair value, while others view the application of such a discount to be inconsistent with the principles of ASC 820. To reduce the diversity in practice and increase the comparability of reported financial information, ASU 2022-03 clarifies this guidance and amends the illustrative example. ASU No. 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of this ASU on our financial statements. 13 The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements. NOTE 3 – DISCONTINUED OPERATIONS On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil Due to the on-going losses and risk associated with the SmartDesk business the Company has valued the royalty and SAFE agreement associated with the SmartDesk sale at $ 0 and considers such consideration to be a gain contingency. Based on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the $ 820,000 royalties due and has not accounted for any additional royalties at this time. In accordance with ASC 310 – Receivables, the Company has discounted the royalties due and during the six-month ended March 31, 2023, has recognized $ 678,330 of royalties due and will amortize the remaining amount over the period the royalties are due. The following table summarizes the loss on the sale recorded during the three months ended December 31, 2022, included in Income/(loss) from discontinued operations, net of tax in the accompanying condensed consolidated statement of Operations: SUMMARY OF LOSS ON SALE Purchase Price $ 745,621 Less cash and cash equivalents transferred ( 699,423 ) Less Liabilities assumed ( 10,924 ) Net purchase price $ 35,274 Assets Sold Accounts receivable, net $ 625,638 Inventory, net 980,730 Prepaid expenses and other assets 502,577 Property and equipment, net 837,808 Goodwill 598,392 Total Assets Sold 3,545,145 Liabilities Transferred Accounts payable 370,774 Short-term liabilities 364,775 Long-term liabilities 318,981 Total Liabilities Transferred 1,054,530 Net assets sold $ 2,490,615 Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies $ ( 2,455,341 ) 14 Assets and liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets at March 31, 2023 and September 30, 2022 are as follows; SCHEDULE OF ASSETS AND LIABILITIES INCLUDED WITHIN DISCONTINUED OPERATIONS March 31, September 30, 2023 2022 Assets Current assets Cash and equivalents $ - $ 714,420 Trade receivables, net - 561,470 Inventory –net of allowance for inventory obsolescence - 1,043,865 Prepaid expenses and other assets - 153,461 Total current assets - 2,473,216 Property and equipment, net - 825,850 Other - 672,627 Total Assets $ - $ 3,971,693 Liabilities Current liabilities Accounts payable $ - $ 205,622 Short-term liabilities - 464,429 Deposits from customers - 125,032 Accrued expenses - 10,136 Total current liabilities - 805,219 Long-term liabilities Deferred revenue 6,273 Total long-term liabilities - 6,273 Total liabilities $ - $ 811,492 During the first quarter of fiscal 2023, Vicon completed the closure of its discontinued operating entity Vicon Systems, Ltd. located in Israel. The Company received funds related to benefit obligations of $ 96,095 , which at the time of operational closure were not guaranteed to be retrievable. The company paid $ 7,010 in consulting fees for assistance in retrieving these funds. The net amount of $ 89,085 is recognized on the Company’s Condensed Consolidated Income Statement as part of the Loss on Discontinued Operations. 15 Gain/(loss) from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of Cemtrex Advanced Technologies, Inc. and Cemtrex XR, Inc., sold during the first quarter of fiscal year 2023, which are presented in total as discontinued operations, net of tax in the Company’s Condensed Consolidated Statements of Operations for the three and six month periods ended March 31, 2023 and 2022, are as follows: 2023 2022 2023 2022 Three months ended March 31, Six months ended March 31, 2023 2022 2023 2022 Total net sales $ - $ 982,198 $ 649,061 $ 2,241,292 Cost of sales - 699,368 228,086 1,311,518 Operating, selling, general and administrative expenses 492 1,207,945 1,296,064 2,610,813 Other (income)/expenses - ( 239,975 ) 3,195 ( 236,941 ) Income (loss) from discontinued operations ( 492 ) ( 685,140 ) ( 878,284 ) ( 1,444,098 ) Amortization of discounted royalties 14,724 - 19,151 - Loss on sale of discontinued operations - - ( 2,455,341 ) - Adjustment of benefit obligation - - 89,085 - Income tax provision - - - - Discontinued operations, net of tax $ 14,232 $ ( 685,140 ) $ ( 3,225,389 ) $ ( 1,444,098 ) NOTE 4 – LOSS PER COMMON SHARE Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. For the three and six months ended March 31, 2023, and 2022, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive: SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER COMMON SHARE AS ANTI-DILUTIVE EFFECT 2023 2022 2023 2022 For the three months ended For the six months ended March 31, March 31, 2023 2022 2023 2022 Options 28,796 22,858 28,796 22,858 16 NOTE 5 – SEGMENT INFORMATION During the first quarter of fiscal year 2023, the Company reorganized its reporting segments to be in line with its current structure. The Company reports and evaluates financial information for three current segments: the Security segment, Industrial Services segment and the Corporate segment. The following tables summarize the Company’s segment information: SCHEDULE OF SEGMENT INFORMATION Security Industrial Services Corporate Consolidated Security Industrial Services Corporate Consolidated Three months ended March 31, 2023 Six months ended March 31, 2023 Security Industrial Services Corporate Consolidated Security Industrial Services Corporate Consolidated Revenues $ 9,913,898 $ 6,159,499 $ - $ 16,073,397 $ 16,918,642 $ 11,124,997 $ - $ 28,043,639 Cost of revenues 4,791,608 3,943,308 - 8,734,916 8,392,662 7,269,881 - 15,662,543 Gross profit $ 5,122,290 $ 2,216,191 $ - $ 7,338,481 $ 8,525,980 $ 3,855,116 $ - $ 12,381,096 Operating expenses Sales, general, and administrative 2,965,659 1,336,313 807,242 5,109,214 5,715,088 2,525,178 1,793,951 10,034,217 Depreciation and amortization 31,543 157,385 20,125 209,053 71,203 324,906 52,279 448,388 Research and development 1,615,341 - - 1,615,341 3,445,054 - - 3,445,054 Operating income/(loss) $ 509,747 $ 722,493 $ ( 827,367 ) $ 404,873 $ ( 705,365 ) $ 1,005,032 $ ( 1,846,230 ) $ ( 1,546,563 ) Other income/(expense) $ 337,191 $ ( 29,866 ) $ ( 1,265,959 ) $ ( 958,634 ) $ 224,792 $ ( 61,426 ) $ ( 2,267,317 ) $ ( 2,103,951 ) Three months ended March 31, 2022 Six months ended March 31, 2022 Security Industrial Services Corporate Consolidated Security Industrial Services Corporate Consolidated Revenues $ 6,740,109 $ 5,005,908 $ - $ 11,746,017 $ 11,099,532 10,059,880 $ - $ 21,159,412 Cost of revenues 4,436,346 3,539,890 - 7,976,236 7,003,704 7,163,677 - 14,167,381 Gross profit $ 2,303,763 $ 1,466,018 $ - $ 3,769,781 $ 4,095,828 $ 2,896,203 $ - $ 6,992,031 Operating expenses Sales, general, and administrative 2,438,851 1,213,788 1,123,329 4,775,968 5,298,815 2,624,649 2,052,752 9,976,216 Depreciation and amortization 366,929 176,490 36,702 580,121 398,707 355,713 73,404 827,824 Research and development 1,306,862 - 1,052 1,307,914 2,379,760 - 1,052 2,380,812 Operating (loss)/income $ ( 1,808,879 ) $ 75,740 $ ( 1,161,083 ) $ ( 2,894,222 ) $ ( 3,981,454 ) $ ( 84,159 ) $ ( 2,127,208 ) $ ( 6,192,821 ) Other income/(expense) $ ( 37,015 ) $ ( 25,741 ) $ ( 1,159,805 ) $ ( 1,222,561 ) $ 824,685 $ ( 76,789 ) $ ( 2,442,723 ) $ ( 1,694,827 ) 2023 2022 March 31, September 30, 2023 2022 Identifiable Assets Security $ 17,951,806 $ 15,257,235 Industrial Services 17,667,808 16,658,984 Corporate 4,784,566 9,869,716 Discontinued operations - 3,971,693 Total Assets $ 40,404,180 $ 45,757,628 NOTE 6 – RESTRICTED CASH A subsidiary of the Company participates in a consortium in order to self-insure group care coverage for its employees. The plan is administrated by Benecon Group and the Company makes monthly deposits in a trust account to cover medical claims and any administrative costs associated with the plan. These funds, as required by the plan are restricted in nature and amounted to $ 645,297 at March 31, 2023 and $ 1,577,915 at September 30, 2022. NOTE 7 – FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the guidance for fair value measurements are described below: Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Our Level 1 assets include cash equivalents, banker’s acceptances, trading securities investments and investment funds. The Company measures trading securities investments and investment funds at quoted market prices as they are traded in an active market with sufficient volume and frequency of transactions. 17 Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified contractual term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. Level 3 assets and liabilities include cost method investments. Quantitative information for Level 3 assets and liabilities reviewed at each reporting period includes indicators of significant deterioration in the earnings performance, credit rating, asset quality, business prospects of the investee, and financial indicators of the investee’s ability to continue as a going concern. The Company’s fair value assets at March 31, 2023 and September 30, 2022, are as follows. SCHEDULE OF FAIR VALUE OF ASSETS Quoted Prices Significant in Active Other Significant Balance Markets for Observable Unobservable as of Identical Assets Inputs Inputs March 31, (Level 1) (Level 2) (Level 3) 2023 Assets Investment in marketable securities (included in short-term investments) $ 13,663 $ - $ - $ 13,663 Fair value assets $ 13,663 $ - $ - $ 13,663 Quoted Prices Significant   in Active Other Significant Balance Markets for Observable Unobservable as of Identical Assets Inputs Inputs September 30, (Level 1) (Level 2) (Level 3) 2022 Assets Investment in marketable securities (included in short-term investments) $ 13,721 $ - $ - $ 13,721 Fair value assets $ 13,721 $ - $ - $ 13,721 NOTE 8 – TRADE RECEIVABLES, NET Trade receivables, net consist of the following: SCHEDULE OF TRADE RECEIVABLES, NET March 31, September 30, 2023 2022 Trade receivables $ 7,519,384 $ 5,648,655 Allowance for doubtful accounts ( 247,896 ) ( 249,439 ) Accounts receivables, net, total $ 7,271,488 $ 5,399,216 Trade receivables include amounts due for shipped products and services rendered. Allowance for doubtful accounts includes estimated losses resulting from the inability of our customers to make the required payments. 18 NOTE 9 – INVENTORY, NET Inventory, net, consist of the following: SCHEDULE OF INVENTORY, NET March 31, September 30, 2023 2022 Raw materials $ 1,560,503 $ 1,375,933 Work in progress 216,724 120,026 Finished goods 7,809,788 8,080,235 Inventory, gross 9,587,015 9,576,194 Less: Allowance for inventory obsolescence ( 1,025,989 ) ( 1,088,377 ) Inventory –net of allowance for inventory obsolescence $ 8,561,026 $ 8,487,817 NOTE 10 – PREPAID AND OTHER CURRENT ASSETS On March 31, 2023, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $ 665,525 , costs and estimated earnings in excess of billings on uncompleted contracts of $ 794,416 , and other current assets of $ 1,128,459 . On September 30, 2022, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $ 414,997 , costs and estimated earnings in excess of billings on uncompleted contracts of $ 781,819 , accrued income taxes refunds on foreign operations of $ 37,761 , and prepaid expenses and other current assets of $ 1,187,067 . NOTE 11 – PROPERTY AND EQUIPMENT Property and equipment are summarized as follows: SUMMARY OF PROPERTY AND EQUIPMENT March 31, September 30, 2023 2022 Land $ 790,373 $ 790,373 Building and leasehold improvements 2,914,854 2,906,953 Furniture and office equipment 561,183 546,548 Computers and software 208,135 365,892 Machinery and equipment 10,747,542 11,242,709 Property and equipment, gross 15,222,087 15,852,475 Less: Accumulated depreciation ( 10,169,291 ) ( 10,572,033 ) Property and equipment, net $ 5,052,796 $ 5,280,442 Depreciation expense for the three months ended March 31, 2023, and 2022 were $ 209,053 and $ 347,494 , respectively. Depreciation expense for the six months ended March 31, 2023, were $ 448,388 , and $ 610,327 , respectively. NOTE 12 – OTHER ASSETS As of March 31, 2023, the Company had other assets of $ 1,584,910 which was comprised of rent security of $ 199,088 , a strategic investment in MasterpieceVR of $ 1,000,000 (see below), and other assets of $ 385,822 . As of September 30, 2022, the Company had other assets of $ 1,399,745 which was comprised of rent security deposits of $ 204,388 , Investment in Masterpiece VR valued at $ 1,000,000 , and other assets of $ 195,357 . On November 13, 2020, Cemtrex made a $ 500,000 investment and on January 19, 2022, made an additional $ 500,000 investment via a simple agreement for future equity (“SAFE”) in MasterpieceVR. The SAFE provides that the Company will automatically receive shares of the entity based on the conversion rate of future equity rounds up to a valuation cap, as defined. MasterpieceVR is a software company that is developing software for content creation using virtual reality. The investment is included in other assets in the accompanying balance sheet and the Company accounts for this investment and recorded at cost. No impairment has been recorded for the three and six months ended March 31, 2023. 19 NOTE 13 – RELATED PARTY TRANSACTIONS On August 31, 2019, the Company entered into an Asset Purchase Agreement for the sale of Griffin Filters, LLC to Ducon Technologies, Inc., which Aron Govil, the Company’s Founder and former CFO, for total consideration of $ 550,000 . On July 31, 2022, the Company negotiated a payment agreement surrounding the sale of Griffin Filters, LLC and other liabilities due to Cemtrex, Inc. totaling $ 761,585 . This agreement is in the form of a secured promissory note earning interest at a rate of 5 % per annum and matures on July 31, 2024 . As of March 31, 2023, and September 30, 2022, there was $ 3,368 and $ 19,133 payable due to Ducon Technologies, Pvt Ltd., respectively. Receivables of $ 708,512 that represented the amount due from Ducon to Cemtrex Technologies Pvt. Ltd. the Company’s subsidiary based in India were written off to bad debt in fiscal year 2022. On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding transactions Cemtrex’s Board of Directors determined were incorrectly handled and accounted for. Mr. Govil executed a secured promissory note (the “Note”) in the amount of $ 1,533,280 . The Note matured and was due in full on February 26, 2023 , and bore interest at 9 % per annum and was secured by all of Mr. Govil’s assets. On April 27, 2023, the Company and Mr. Govil signed an amendment to the note, extending the maturity date one year to February 28, 2024 . Mr. Govil also signed an affidavit confessing judgment in the event of a default on the Note. While the Company believes the note to be fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain was not to be recognized until the note is paid. Accordingly, the note and associated gain is not presented on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations. On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc., which include the brands SmartDesk, Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil (see NOTE 1). As of March 31, 2023, there was $ 408,464 in trade receivables due from these companies. Of these receivables $ 123,812 are related to costs paid by Cemtrex related to payroll during the transition of employees to the new company. The remaining $ 284,652 are related to services provided by Cemtrex Technologies Pvt. Ltd. in the normal course of business. As of March 31, 2023, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $ 678,330 . NOTE 14 – LEASES The Company is party to contracts where we lease property from others under contracts classified as operating leases. The Company primarily leases office and operating facilities, vehicles, and office equipment. The weighted average remaining term of our operating leases was approximately 3.3 years at March 31, 2023 and 3.0 years at March 31, 2022. Lease liabilities were $ 2,297,293 with $ 732,680 classified as short-term at March 31, 2023, and $ 2,576,963 with $ 754,495 , classified as short-term at September 30, 2022. The weighted average discount rate used to measure lease liabilities was approximately 5.66 % at March 31, 2023 and March 31, 2022. The Company used the rate implicit in the lease, where known, or its incremental borrowing rate as the rate used to discount the future lease payments. The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less. 20 A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at March 31, 2023, is set forth below: SCHEDULE OF RECONCILIATION OF UNDISCOUNTED CASH FLOWS TO OPERATING LEASE LIABILITIES Years ending September 30, Operating Leases 2023 431,540 2024 755,686 2025 733,327 2026 539,279 2027 & Thereafter 205,358 Undiscounted lease payments 2,665,190 Amount representing interest ( 367,897 ) Discounted lease payments $ 2,297,293 Lease costs for the three and six months ended March 31, 2023 and 2022 are set forth below.: SCHEDULE OF LEASE COSTS 2023 2022 2023 2022 For the three months ended For the six months ended March 31, March 31, 2023 2022 2023 2022 Lease costs: Finance lease costs $ - $ - $ - $ - Operating lease costs 223,213 130,511 484,646 369,363 Total lease cost $ 223,213 $ 130,511 $ 484,646 $ 369,363 NOTE 15 – LINES OF CREDIT AND LONG-TERM LIABILITIES On January 12, 2023, the Company entered into a standstill agreement with Streeterville Capital, LLC. The lender has agreed to refrain and forbear temporarily from making redemptions under the notes for a period ending on April 12, 2023. In addition, the company has agreed to an increase of the outstanding balance of the note issued on September 30, 2021 for the original amount of $ 5,755,000 by $ 148,000 , and the outstanding balance of the note issued on February 22, 2022 for the original amount of $ 9,205,000 by $ 303,422 . The aggregate amount of $ 451,422 has been recorded as interest expense on the Company’s Consolidated Condensed Statement of Operations and Condensed Consolidated Statements of Cash Flow. On February 15, 2023, the Company and Fulton Bank agreed to an amendment to the Master Agreement Regarding Financial Covenants and Financial Deliverables dated September 22, 2020. On March 3, 2023, the Company and NIL Funding agreed at an amendment to the term loan agreement dated September 18, 2018. This agreement amends the maturity date to December 31, 2024 and amends the interest rate to 11.5 %. Additionally, the Company paid $ 10,000 in fees and made an additional principal payment of $ 100,000 on March 29, 2023 and is required to make another additional principal payment of $ 100,000 on or before March 29, 2024. The Company has accounted for this amendment as a debt modification. On May 3, 2023, the Company and Streeterville Capital, LLC. agreed to an amendment to the note issued on September 30, 2021 for the original amount of $ 5,755,000 . The agreement extends the maturity date to June 30, 2024 , in exchange for a fee of 5 % of the outstanding balance or approximately $ 252,912 added to the outstanding balance of the note. The Company has accounted for this amendment as a debt modification. 21 The following table outlines the Company’s lines of credit and secured liabilities. SCHEDULE OF LINES OF CREDIT AND LIABILITIES March 31, September 30, Interest Rate Maturity 2023 2022 Fulton Bank line of credit $ 3,500,000 - The terms of this line of credit are subject to the bank’s review annually on February 1. Secured Overnight Financing Rate (“SOFR”) plus 2.37 % ( 7.24 % as of March 31, 2023 and 5.35 % as of September 30, 2022) N/A $ - $ - Fulton Bank loan $ 5,250,000 for the purchase of AIS $ 5,000,000 of the proceeds went to the direct purchase of AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. SOFR plus 2.37 %( 7.24 % as of March 31, 2023 and 5.35 % as of September 30, 2022) 12/15/2022 - 247,284 Fulton Bank loan $ 400,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. SOFR plus 2.37 % ( 7.24 % as of March 31, 2023 and 5.35 % as of September 30, 2022) 5/1/2023 16,070 63,280 Fulton Bank - $ 360,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. SOFR plus 2.37 % ( 7.24 % as of March 31, 2023 and 5.35 % as of September 30, 2022). 5/1/2023 146,915 183,839 Fulton Bank mortgage $ 2,476,000 . The Company was in compliance with loan covenants as of March 31, 2023. SOFR plus 2.62 % ( 7.49 % as of March 31, 2023 and 5.6 % as of September 30, 2022). 1/28/2040 2,211,359 2,245,664 Note payable - $ 439,774 . For the purchase of VDI. Payable in two installments on October 26, 2021, and October 26, 2022. 5 % 10/26/2022 - 219,370 Note payable - $ 5,755,000 - Less original issue discount $ 750,000 and legal fees $ 5,000 , net cash received $ 5,000,000 Unamortized original issue discount balance of $ 0 and $ 250,000 , as of March 31, 2023 and September 30, 2022 respectively. 8 % 6/30/2024 5,171,271 4,943,929 Note payable - $ 9,205,000 . Less original issue discount $ 1,200,000 and legal fees $ 5,000 ,net cash received $ 8,000,000 . 28,572 shares of common stock valued at $ 700,400 recognized as additional original issue discount. Unamortized original issue discount balance of $ 422,311 and $ 1,064,778 as of March 31, 2023 and September 30, 2022 respectivly. 8 % 8/23/2023 10,601,904 9,738,632 Term Loan Agreement with NIL Funding Corporation (“NIL”) - $ 5,600,000 The Company was in compliance with loan covenants as of March 31, 2023. 11.50 % 12/31/2024 2,479,743 2,804,743 Paycheck Protection Program loan - $ 121,400 - The issuing bank determined that this loan qualifies for loan forgiveness; however the Company is awaiting final approval from the Small Business Administration. 1 % 5/5/2025 111,367 121,400 Total lines of credit and secured liabilities $ 20,738,629 $ 20,568,141 Less: Current maturities ( 16,441,488 ) ( 16,894,743 ) Less: Unamortized original issue discount ( 422,311 ) ( 1,305,778 ) Lines of credit and secured liabilities, Long Term $ 3,874,830 $ 2,367,620 NOTE 16 – SHAREHOLDERS’ EQUITY Preferred Stock The Company is authorized to issue 10,000,000 shares of Preferred Stock, $ 0.001 par value. As of March 31, 2023, and September 30, 2022, there were 2,233,463 and 2,129,122 shares issued and 2,169,363 and 2,065,022 shares outstanding, respectively. 22 Series 1 Preferred Stock During the six months ended March 31, 2023, 104,341 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. As of March 31, 2023, and September 30, 2022, there were 2,183,463 and 2,079,122 shares of Series 1 Preferred Stock issued and 2,119,363 and 2,015,022 shares of Series 1 Preferred Stock outstanding, respectively. Series C Preferred Stock As of March 31, 2023, and September 30, 2022, there were 50,000 shares of Series C Preferred Stock issued and outstanding. Common Stock The Company is authorized to issue 50,000,000 shares of common stock, $ 0.001 par value. As of March 31, 2023, there were 828,570 shares issued and outstanding and at September 30, 2022, there were 754,711 shares issued and outstanding. On January 25, 2023, the Company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively adjusted for this reverse split. On February 2, 2023, 19,314 shares were issued for rounding shares of the reverse stock split. During the six months ended March 31, 2023, 39,016 shares of the Company’s common stock have been issued to satisfy $ 31,331 of notes payable, $ 168,669 in accrued interest, and $ 32,145 of excess value of shares issued recorded as interest expense. During the three and six months ended March 31, 2023, 15,529 shares of the Company’s common stock have been issued in exchange for services valued at $ 102,500 . NOTE 17 – SHARE-BASED COMPENSATION For the six months ended March 31, 2023, and 2022, the Company recognized $ 66,577 and $ 72,417 of share-based compensation expense on its outstanding options, respectively. As of March 31, 2023, $ 103,557 of unrecognized share-based compensation expense is expected to be recognized over a period of two years and six months. Future compensation amounts will be adjusted for any change in estimated forfeitures. During the six months ended March 31, 2023, options to purchase 2,931 shares of the Company’s common stock at an exercise price of $ 13.65 per share and options to purchase 2,858 shares of the Company’s common stock at an exercise price of $ 40.95 per share were cancelled. NOTE 18 – COMMITMENTS AND CONTINGENCIES The Company’s corporate segment leases approximately 100 square feet of office space in Brooklyn, NY on a month-to-month lease at a rent of $ 600 per month. The Company’s Industrial Services segment owns approximately 25,000 square feet of warehouse space in Manchester, PA and approximately 43,000 square feet of office and warehouse space in York, PA. The IS segment also leases approximately 15,500 square feet of warehouse space in Emigsville, PA from a third party in a three-year lease at a monthly rent of $ 4,555 expiring on August 31, 2025 . The Company’s Security segment leases (i) approximately 6,700 square feet of office and warehouse space in Pune, India from a third party in an five year lease at a monthly rent of $ 6,453 (INR 456,972 ) expiring on February 28, 2024 , (ii) approximately 30,000 square feet of office and warehouse space in Hauppauge, New York from a third party in a seven-year lease at a monthly rent of $ 28,719 expiring on March 31, 2027 , (iii) approximately 9,400 square feet of office and warehouse space in Hampshire, England in a fifteen-year lease with at a monthly rent of $ 7,329 (£ 5,771 ) which expires on March 24, 2031 and contains provisions to terminate in 2026 , and (iv) approximately 280 square feet of office space in Clovis, CA on a month-to-month lease at a monthly rent of $ 1,504 . NOTE 19 – SUBSEQUENT EVENTS On April 6, 2023, 109,553 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. The holders of the Series 1 Preferred Stock are entitled to receive dividends at the rate of 10 % annually, based on the $ 10.00 per share Preference Amount, payable semiannually. On April 13, 2023, the Company issued an aggregate of 20,226 shares of common stock to settle $ 150,000 of notes payable and accrued interest, and $ 53,069 of excess value of shares issued to be recorded as interest expense. On May 4, 2023, the Company issued an aggregate of 36,740 shares of common stock to settle $ 275,000 of notes payable and accrued interest, and $ 87,256 of excess value of shares issued to be recorded as interest expense. 23