CEMTREX INC 10-Q

Item 1. Financial Statements Cemtrex, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) December 31, September 30, 2023 2023 Assets Current assets Cash and cash equivalents $ 2,835,216 $ 5,329,910 Restricted cash 1,181,516 1,019,652 Short-term investments 13,307 13,663 Trade receivables, net 9,904,555 9,209,695 Trade receivables, net - related party 1,496,692 1,143,342 Trade receivables, net 1,496,692 1,143,342 Inventory, net 7,938,617 8,739,219 Contract assets, net 1,694,135 1,739,201 Prepaid expenses and other current assets 1,347,298 2,098,359 Total current assets 26,411,336 29,293,041 Property and equipment, net 9,170,376 9,218,701 Right-of-use operating lease assets 2,094,342 2,287,623 Royalties receivable, net- related party 488,174 674,893 Note receivable, net - related party 761,585 761,585 Goodwill 4,381,891 4,381,891 Other 1,990,601 1,836,009 Total Assets $ 45,298,305 $ 48,453,743 Liabilities & Stockholders’ Equity Current liabilities Accounts payable $ 4,124,014 $ 6,196,406 Accounts payable - related party 68,730 68,509 Accounts payable 68,730 68,509 Sales tax payable 10,713 35,829 Revolving line of credit 3,357,324 - Current maturities of long-term liabilities 15,717,081 14,507,711 Operating lease liabilities - short-term 728,875 741,487 Deposits from customers 83,613 57,434 Accrued expenses 1,842,692 2,784,390 Contract liabilities 988,725 980,319 Deferred revenue 1,562,107 1,583,406 Accrued income taxes 212,249 388,627 Total current liabilities 28,696,123 27,344,118 Long-term liabilities Loans payable to bank 1,852,620 1,909,739 Long-term operating lease liabilities 1,426,684 1,607,202 Notes payable 1,600,000 4,679,743 Mortgage payable 3,267,355 3,289,303 Other long-term liabilities 405,624 501,354 Paycheck Protection Program Loans 40,443 50,563 Deferred Revenue - long-term 694,245 727,928 Total long-term liabilities 9,286,971 12,765,832 Total liabilities 37,983,094 40,109,950 Commitments and contingencies - - Stockholders’ equity Preferred stock , $ 0.001 par value, 10,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,408,053 shares issued and 2,343,953 shares outstanding as of December 31, 2023 and 2,293,016 shares issued and 2,228,916 shares outstanding as of September 30, 2023 (liquidation value of $ 10 per share) 2,408 2,293 Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at December 31, 2023 and September 30, 2023 50 50 Preferred stock, value 50 50 Common stock, $ 0.001 par value, 50,000,000 shares authorized, 1,055,636 shares issued and outstanding at December 31, 2023 and 1,045,783 shares issued and outstanding at September 30, 2023 1,056 1,046 Additional paid-in capital 68,929,137 68,881,705 Accumulated deficit ( 65,333,389 ) ( 64,125,895 ) Treasury stock, 64,100 shares of Series 1 Preferred Stock at December 31, 2023 and September 30, 2023 ( 148,291 ) ( 148,291 ) Accumulated other comprehensive income 3,304,470 3,076,706 Total Cemtrex stockholders’ equity 6,755,441 7,687,614 Non-controlling interest 559,770 656,179 Total liabilities and stockholders’ equity $ 45,298,305 $ 48,453,743 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) December 31, 2023 December 31, 2022 For the three months ended December 31, 2023 December 31, 2022 Revenues $ 16,878,166 $ 11,970,242 Cost of revenues 9,795,767 6,927,627 Gross profit 7,082,399 5,042,615 Operating expenses General and administrative 6,971,966 5,455,833 Research and development 848,805 1,538,218 Total operating expenses 7,820,771 6,994,051 Operating loss ( 738,372 ) ( 1,951,436 ) Other (expense)/income Other income/(expense), net 78,411 ( 17,083 ) Interest expense ( 583,683 ) ( 1,128,234 ) Total other (expense)/income, net ( 505,272 ) ( 1,145,317 ) Net loss before income taxes ( 1,243,644 ) ( 3,096,753 ) Income tax expense ( 70,751 ) - Loss from Continuing operations ( 1,314,395 ) ( 3,096,753 ) Income/(loss) from discontinued operations, net of tax 10,492 ( 3,239,621 ) Net loss ( 1,303,903 ) ( 6,336,374 ) Less loss in noncontrolling interest ( 96,409 ) ( 59,163 ) Net loss attributable to Cemtrex, Inc. stockholders $ ( 1,207,494 ) $ ( 6,277,211 ) Income/(loss) per share - Basic & Diluted Continuing Operations $ ( 1.16 ) $ ( 3.99 ) Discontinued Operations $ 0.01 $ ( 4.25 ) Weighted Average Number of Shares-Basic & Diluted 1,047,624 761,571 Condensed Consolidated Statements of Comprehensive Loss (Unaudited) December 31, 2023 December 31, 2022 For the three months ended December 31, 2023 December 31, 2022 Other comprehensive loss Net loss $ ( 1,303,903 ) $ ( 6,336,374 ) Foreign currency translation gain 227,764 223,569 Comprehensive loss ( 1,076,139 ) ( 6,112,805 ) Less comprehensive income attributable to noncontrolling interest ( 96,409 ) ( 59,163 ) Comprehensive loss attributable to Cemtrex, Inc. stockholders $ ( 979,730 ) $ ( 6,053,642 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Cemtrex, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) Number of Shares Amount Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Preferred Stock Comprehensive Income Stockholders’ Equity controlling interest Preferred Stock Series 1 Par Value $0.001 Preferred Stock Series C Par Value $0.001 Common Stock Par Value $0.001 Additional Treasury Stock, 64,100 shares of Series 1 Accumulated other Cemtrex Non- Number of Shares Amount Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Preferred Stock Comprehensive Income Stockholders’ Equity controlling interest Balance at September 30, 2023 2,293,016 $ 2,293 50,000 $ 50 1,045,783 $ 1,046 $ 68,881,705 $ ( 64,125,895 ) $ ( 148,291 ) $ 3,076,706 $ 7,687,614 $ 656,179 Foreign currency translation gain 227,764 227,764 Share-based compensation 7,557 7,557 Dividends paid in Series 1 preferred shares 115,037 115 ( 115 ) - Income/(loss) attributable to noncontrolling interest - ( 96,409 ) Shares issued to pay for services 9,853 10 39,990 40,000 Net loss - ( 1,207,494 ) - ( 1,207,494 ) Balance at December 31, 2023 2,408,053 $ 2,408 50,000 $ 50 1,055,636 $ 1,056 $ 68,929,137 $ ( 65,333,389 ) $ ( 148,291 ) $ 3,304,470 $ 6,755,441 $ 559,770 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 (Continued) (Unaudited) Preferred Stock Series 1 Par Value $0.001 Preferred Stock Series C Par Value $0.001 Common Stock Par Value $0.001 Additional Treasury Stock, 64,100 shares of Series 1 Accumulated other Cemtrex Non- Number of Shares Amount Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Preferred Stock Comprehensive Income Stockholders’ Equity controlling interest Balance at September 30, 2022 2,079,122 $ 2,079 50,000 $ 50 754,711 $ 755 $ 66,641,696 $ ( 54,929,020 ) $ ( 148,291 ) $ 2,377,525 $ 13,944,794 $ 692,742 Balance 2,079,122 $ 2,079 50,000 $ 50 754,711 $ 755 $ 66,641,696 $ ( 54,929,020 ) $ ( 148,291 ) $ 2,377,525 $ 13,944,794 $ 692,742 Foreign currency translation gain 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 $ 66,913,540 $ ( 61,206,231 ) $ ( 148,291 ) $ 2,601,094 $ 8,163,139 $ 633,579 Balance 2,183,463 $ 2,183 50,000 $ 50 793,727 $ 794 $ 66,913,540 $ ( 61,206,231 ) $ ( 148,291 ) $ 2,601,094 $ 8,163,139 $ 633,579 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Cemtrex, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) 2023 2022 For the three months ended December 31, 2023 2022 Cash Flows from Operating Activities Net loss $ ( 1,303,903 ) $ ( 6,336,374 ) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 368,301 530,830 Gain on disposal of property and equipment - ( 3,547 ) Noncash lease expense 193,281 197,198 Bad debt expense 11,964 4,510 Share-based compensation 7,557 39,842 Income tax expense 70,751 - Interest expense paid in equity shares - 32,145 Accounts payable paid in equity shares 40,000 - Accrued interest on notes payable 327,132 528,100 Non-cash royalty income ( 13,282 ) - Amortization of original issue discounts on notes payable - 441,734 Amortization of loan origination costs 18,133 - Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: Trade receivables ( 696,824 ) ( 1,541,371 ) Trade receivables - related party ( 163,349 ) ( 383,710 ) Inventory 800,602 ( 116,942 ) Contract assets 45,066 ( 260,647 ) Prepaid expenses and other current assets 636,906 ( 410,327 ) Other assets ( 54,592 ) ( 146,356 ) Accounts payable ( 2,072,392 ) ( 327,945 ) Accounts payable - related party 221 ( 99 ) Sales tax payable ( 25,116 ) ( 2,387 ) Operating lease liabilities ( 193,130 ) ( 132,963 ) Deposits from customers 26,179 416,523 Accrued expenses ( 941,698 ) 977,328 Contract liabilities 8,406 1,037,897 Deferred revenue ( 54,982 ) ( 95,395 ) Income taxes payable ( 78,574 ) ( 94,848 ) Other liabilities ( 95,730 ) ( 225,506 ) Net cash used by operating activities - continuing operations ( 3,139,073 ) ( 5,872,310 ) Net cash provided by operating activities - discontinued operations - 2,501,426 Net cash used by operating activities ( 3,139,073 ) ( 3,370,884 ) Cash Flows from Investing Activities Purchase of property and equipment ( 290,666 ) ( 571,658 ) Proceeds from sale of property and equipment - 3,547 Proceeds from sale of marketable securities 356 - Investment in MasterpieceVR ( 100,000 ) - Net cash used by by investing activities - continuing operations ( 390,310 ) ( 568,111 ) Net cash provided by investing activities - discontinued operations - 207,329 Net cash used by investing activities ( 390,310 ) ( 360,782 ) Cash Flows from Financing Activities Proceeds on revolving line of credit 11,655,935 - Payments on revolving line of credit ( 8,371,144 ) - Payments on debt ( 2,204,743 ) ( 294,370 ) Payments on Paycheck Protection Program Loans ( 10,120 ) - Proceeds on bank loans 28,331 - Payments on bank loans ( 100,160 ) ( 306,550 ) Net cash provided by/(used by) financing activities 998,099 ( 600,920 ) Effect of currency translation 198,454 229,243 Net decrease in cash, cash equivalents, and restricted cash ( 2,531,284 ) ( 4,332,586 ) Less cash attributed to discontinued operations - ( 714,420 ) Cash, cash equivalents, and restricted cash at beginning of period 6,349,562 12,188,096 Cash, cash equivalents, and restricted cash at end of period $ 4,016,732 $ 7,370,333 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 (Continued) (Unaudited) Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash Cash and cash equivalents $ 2,835,216 $ 5,768,610 Restricted cash 1,181,516 1,601,723 Total cash, cash equivalents, and restricted cash $ 4,016,732 $ 7,370,333 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 238,418 $ 126,255 Cash paid during the period for income taxes, net of refunds $ 176,378 $ 94,848 Supplemental Schedule of Non-Cash Investing and Financing Activities Shares issued to pay for services $ 40,000 $ - Shares issued to pay notes payable $ - $ 232,145 Financing of fixed asset purchase $ 28,331 $ - Investment in right of use asset $ - $ 76,506 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 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. The Company’s reporting segments consist of Security and Industrial Services. 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. Acquisition of Heisey Mechanical On July 1, 2023, the Company under AIS, completed the acquisition of a leading service contractor and steel fabricator that specializes in industrial and water treatment markets, Heisey Mechanical, Ltd. (“Heisey”) based in Columbia, Pennsylvania for $ 2,400,000 plus adjustments for the outstanding contract assets and liabilities of $ 393,291 . The real estate of the business was purchased at fair market value on August 30, 2023, for $ 1,500,000 in a separate transaction. Heisey provides the water treatment industry with a variety of fabricated vessels and equipment including ASME pressure vessels, heat exchangers, mix tanks, reactors, and other specialized fabricated equipment. Additionally, the contracting team assists with installation and service of fabricated items. The company has over 33,000 square feet of manufacturing floor space in its facility and an experienced staff of fabricators, welders, and field mechanics. The purchase price allocation presented below is still preliminary but has been developed based on an estimate of fair values of Heisey’s identifiable tangible and intangible assets acquired and liabilities assumed as of July 1, 2023. The final allocation of the purchase price will be determined within one year from the closing date of the Heisey acquisition. 9 The consideration transferred and preliminary allocation of Heisey’s tangible and intangible assets and liabilities, are as follows: SCHEDULE OF BUSINESS ACQUISITION OF TANGIBLE AND INTANGIBLE ASSETS AND LIABILITIES Consideration Transferred: Cash $ 393,291 Seller’s note 240,000 Financed amount 2,160,000 Total consideration transferred $ 2,793,291 Purchase Price Allocation: Inventory 300,000 Contract assets 667,259 Machinery and equipment 1,625,000 Contract liabilities ( 216,469 ) Accrued expenses ( 57,499 ) Goodwill 475,000 Total consideration transferred $ 2,793,291 The pro forma summary below presents the results of operations as if the Heisey acquisition occurred on October 1, 2022. Proforma adjustments for the three months ended December 31, 2022, includes $ 63,900 of depreciation expense from acquired fixed assets, $ 33,400 of interest expense on the debt used in the acquisition. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any cost savings, operating synergies or revenue enhancements that might have been achieved from combining the operations. The unaudited pro forma summary is provided for illustrative purposes only and does not purport to represent the Company’s actual consolidated results of operations had the acquisition been completed as of the date presented, nor should it be considered indicative of the Company’s future consolidated results of operations. SCHEDULE OF PRO FORMA FINANCIAL INFORMATION Unaudited for the three months ended December 31, 2022 Revenues $ 13,173,838 Net loss ( 6,440,203 ) On August 30, 2023, the Company acquired a mortgage in the amount of $ 1,200,000 from Fulton Bank to finance the purchase of the properties formerly owned by Heisey Mechanical Ltd. The mortgage carries interest at the Secured Overnight Financing Rate (SOFR) plus 2.8 % and matures on September 30, 2043 . Nasdaq Notices for Listing Deficiencies 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. On September 8, 2023, the Company received a letter from the Nasdaq Hearings Panel (“Panel”) informing the Company that the Panel has granted the Company a temporary exception to regain compliance with The Nasdaq Stock Market LLC’s (“Nasdaq” or the “Exchange”) Listing Rule 5555(a)(1) (the “Bid Price Rule”) by no later than January 19, 2024. The Company has announced a special meeting of Series 1 Preferred stock shareholders was scheduled for December 26, 2023, to approve the reverse stock split. On December 26, 2023, the meeting was adjourned to December 29, 2023, due to insufficient votes represented by proxy or virtually in person to constitute a quorum for the transaction of business at the Special Meeting. On December 29, 2023, there were still insufficient votes represented by proxy or virtually in person to constitute a quorum thus the resolution did not pass. 10 Subsequent to the balance sheet date, the Company has bought back 71,951 shares for $ 69,705 under the Share Repurchase Program approved on August 22, 2023, that allows the Company to repurchase shares of the Series 1 Preferred Stock through various means, including through privately negotiated transactions and through an open market program. The Company’s Series 1 Preferred Stock was delisted from the NASDAQ Capital Market on January 22, 2024. The Series 1 Preferred Stock is now quoted on the OTC Markets under the symbol “CETXP”. 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 $ 9,196,875 and $ 13,020,958 for fiscal years 2023 and 2022, respectively, and has losses on continuing operations for the three months ending December 31, 2023, of $ 1,314,395 and has current liabilities of $ 28,696,123 and working capital deficit of $ 2,284,787 , that raise substantial doubt with respect to the Company’s ability to continue as a going concern. While our working capital deficit 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. The Company has approximately $ 2.84 million in cash as of December 31, 2023. Additionally, the Company has (i) secured a line of credit for its Vicon brand to fund operations, which as of December 31, 2023, has available capacity of $ 1,642,676 , (ii) sold unprofitable brands, reducing the cash required to maintain those brands, (iii) continually reevaluate our pricing model on our Vicon brand to improve margins on those products, and (iv) 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 if successful, would be sufficient to meet the capital demands of our current operations for at least the next twelve months, there 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 or available liquidity/available capacity on our lines of credit to meet our short or long-term needs. Absent an ability to raise additional outside capital and restructure or refinance all or a portion of our debt, the Company will be unable to meet its obligations as they become due over the next twelve months beyond the issuance date. 11 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, 2023, of Cemtrex, Inc. 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. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. 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, 2023, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. Recently Adopted Accounting Pronouncements 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. On October 1, 2023, the Company implemented this standard and there has been no material change to the financial statements. The Company estimates credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts. The Company will utilize the Probability-of-default method for financing receivables and loans. Expected credit losses are determined by multiplying the probability of default (i.e., the probability the asset will default within the given time frame) by the loss given default (the percentage of the asset not expected to be collected because of default). The Company considers sources of repayment associated with a financial asset when determining its credit losses, including collection against the collateral and certain embedded credit enhancements, such as guarantees or insurance. The allowance for credit losses were immaterial as of December 31, 2023. 12 Recently Issued Accounting Pronouncements Not Yet Effective 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. In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company for annual reporting for fiscal 2025 and for interim period reporting beginning in fiscal 2026 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of our pending adoption of ASU 2023-07 on our consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year 2026 for the annual reporting period ending September 30, 2026. The Company is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements. 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 three-month periods ended December 31, 2023, and 2022, has recognized $ 13,282 , and $ 4,427 , respectively, of royalties due and will amortize the remaining amount over the period the royalties are due. 13 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 ) As of December 31, 2023, and September 30, 2023, there were no assets or liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets. 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. 14 Income/(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 month periods ended December 31, 2023 and 2022, are as follows: SCHEDULE OF FINANCIAL STATEMENTS INCLUDED WITHIN DISCONTINUED OPERATIONS 2023 2022 For the three months ended December 31, 2023 2022 Total net sales $ - $ 649,061 Cost of sales - 228,086 Operating, selling, general and administrative expenses - 1,295,572 Other (income)/expenses - 3,195 Income (loss) from discontinued operations - ( 877,792 ) Amortization of discounted royalties 13,282 4,427 Loss on sale of discontinued operations - ( 2,455,341 ) Adjustment of benefit obligation - 89,085 Income tax provision 2,790 - Discontinued operations, net of tax $ 10,492 $ ( 3,239,621 ) NOTE 4 – REVENUE The following table illustrates the approximate disaggregation of the Company’s revenue based off timing of revenue recognition for the three months ended December 31, 2023 and 2022: SCHEDULE OF DISAGGREGATION OF REVENUE RECOGNITION For the three months ended December 31, 2023 December 31, 2022 Over time 52 % 51 % Point-in-time 48 % 49 % NOTE 5 – 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 months ended December 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 For the three months ended December 31, 2023 2022 Options 28,796 34,579 15 For the three months ended December 31, 2023 and 2022, loss per share basic and diluted for continuing operations are calculated as follows: SCHEDULE OF LOSS PER SHARE BASIC AND DILUTED FOR CONTINUING OPERATION 2023 2022 For the three months December 31, 2023 2022 Loss from Continuing operations $ ( 1,314,395 ) $ ( 3,096,753 ) Less loss in noncontrolling interest ( 96,409 ) ( 59,163 ) Preferred stock dividends - - Net loss applicable to common shareholders ( 1,217,986 ) ( 3,037,590 ) Weighted Average Number of Shares-Basic & Diluted 1,047,624 761,571 Loss per share - Basic & Diluted - Continuing Operations $ ( 1.16 ) $ ( 3.99 ) NOTE 6 – SEGMENT INFORMATION The Company reports and evaluates financial information for two reportable segments: the Security segment and the Industrial Services segment. The following tables summarize the Company’s reportable segment information and corporate expenses: SCHEDULE OF SEGMENT INFORMATION Security Industrial Services Corporate Consolidated Security Industrial Services Corporate Consolidated Three months ended December 31, 2023 Three months ended December 31, 2022 Reportable Segments Reportable Segments Security Industrial Services Corporate Consolidated Security Industrial Services Corporate Consolidated Revenues $ 9,167,801 $ 7,710,365 $ - $ 16,878,166 $ 7,004,744 $ 4,965,498 $ - $ 11,970,242 Cost of revenues 4,650,854 5,144,913 - 9,795,767 3,601,054 3,326,573 - 6,927,627 Gross profit $ 4,516,947 $ 2,565,452 $ - $ 7,082,399 $ 3,403,690 $ 1,638,925 $ - $ 5,042,615 Operating expenses General, and administrative 4,327,628 1,529,263 746,774 6,603,665 2,749,429 1,188,865 986,709 4,925,003 Depreciation and amortization 128,152 240,149 - 368,301 331,155 167,521 32,154 530,830 Research and development 848,805 - - 848,805 1,538,218 - - 1,538,218 Operating (loss)/income $ ( 787,638 ) $ 796,040 $ ( 746,774 ) $ ( 738,372 ) $ ( 1,215,112 ) $ 282,539 $ ( 1,018,863 ) $ ( 1,951,436 ) Other income/(expense) $ ( 134,261 ) $ ( 108,144 ) $ ( 262,867 ) $ ( 505,272 ) $ ( 112,399 ) $ ( 31,560 ) $ ( 1,001,358 ) $ ( 1,145,317 ) NOTE 7 – 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 $ 1,181,516 at December 31, 2023, and $ 1,019,652 at September 30, 2023. NOTE 8 – 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. 16 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 December 31, 2023, and September 30, 2023, are as follows. SCHEDULE OF FAIR VALUE OF ASSETS Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of December 31, 2023 Assets Investment in marketable securities (included in short-term investments) $ 13,307 $ - $ - $ 13,307 $ 13,307 $ - $ - $ 13,307 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of September 30, 2023 Assets Investment in marketable securities (included in short-term investments) $ 13,663 $ - $ - $ 13,663 $ 13,663 $ - $ - $ 13,663 NOTE 9 – TRADE RECEIVABLES, NET Trade receivables, net consist of the following: SCHEDULE OF TRADE RECEIVABLES, NET December 31, 2023 September 30, 2023 Trade receivables $ 10,141,443 $ 9,444,619 Allowance for credit losses ( 236,888 ) ( 234,924 ) Accounts receivables, net, total $ 9,904,555 $ 9,209,695 Trade receivables include amounts due for shipped products and services rendered. Allowance for credit losses include estimated losses resulting from the inability of our customers to make the required payments. 17 NOTE 10 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following: SUMMARY OF PREPAID AND OTHER CURRENT ASSETS December 31, 2023 September 30, 2023 Prepaid expenses $ 386,334 $ 521,310 Prepaid inventory 559,075 1,084,051 Deferred costs 36,002 25,941 Loan origination costs 54,400 - Prepaid income taxes - 168,555 VAT and GST tax receivable 311,487 298,502 Prepaid expenses and other current assets total $ 1,347,298 $ 2,098,359 NOTE 11 – INVENTORY, NET Inventory, net consisted of the following: SCHEDULE OF INVENTORY, NET December 31, 2023 September 30, 2023 Raw materials $ 857,117 $ 885,398 Work in progress 397,017 109,019 Finished goods 6,684,483 7,744,802 Inventory, net 7,938,617 8,739,219 The Company maintained an allowance for obsolete inventories of $ 502,528 and $ 618,021 at December 31, 2023 and September 30, 2023, respectively. NOTE 12 – PROPERTY AND EQUIPMENT Property and equipment are summarized as follows: SUMMARY OF PROPERTY AND EQUIPMENT December 31, 2023 September 30, 2023 Land $ 945,279 $ 945,279 Building and leasehold improvements 4,370,732 4,362,062 Furniture and office equipment 595,397 579,700 Computers and software 1,333,135 1,333,135 Machinery and equipment 12,744,304 12,488,639 Property and equipment, gross 19,988,847 19,708,815 Less: Accumulated depreciation ( 10,818,471 ) ( 10,490,114 ) Property and equipment, net $ 9,170,376 $ 9,218,701 Depreciation expense for the three months ended December 31, 2023, and 2022, was $ 368,301 and $ 530,830 , respectively and is recorded in general and administrative expenses on the Company’s Condensed consolidated statements of operations. NOTE 13 – GOODWILL Changes in the carrying amount of goodwill, by segment, are as follows: SCHEDULE OF GOODWILL BY SEGMENT Security Industrial Services Corporate Consolidated Balance at September 30, 2023 $ 530,475 $ 3,851,416 $ - $ 4,381,891 Balance at December 31, 2023 $ 530,475 $ 3,851,416 $ - $ 4,381,891 As of December 31, 2023, and September 30, 2023, accumulated impairment losses of $ 3,316,000 related to the Security segment have been recorded. 18 NOTE 14 – OTHER ASSETS On November 13, 2020, Cemtrex made a $ 500,000 investment, on January 19, 2022, made an additional $ 500,000 investment, and on July 18, 2023, and October 5, 2023, made an additional $ 100,000 investment on each date 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 recorded at cost and is included in other assets in the accompanying Condensed consolidated balance sheets. No impairment has been recorded for the three months ended December 31, 2023. Other assets consisted of the following: SCHEDULE OF OTHER ASSETS December 31, 2023 September 30, 2023 Rental deposits $ 56,807 $ 198,641 Investment in Masterpiece VR 1,200,000 1,100,000 Other deposits 322,976 167,808 Demonstration equipment supplied to resellers 410,818 369,560 Other assets total $ 1,990,601 $ 1,836,009 NOTE 15 – ACCRUED EXPENSES Accrued expenses consisted of the following: SCHEDULE OF ACCRUED EXPENSES December 31, 2023 September 30, 2023 Accrued expenses $ 477,094 $ 1,473,465 Accrued payroll 1,142,896 1,088,223 Accrued warranty 222,702 222,702 Accrued expenses total $ 1,842,692 $ 2,784,390 NOTE 16 – DEFERRED REVENUE The Company’s deferred revenue as of and for the three months ended December 31, 2023, and 2022, were as follows: SCHEDULE OF DEFERRED REVENUE For the three months ended December 31, 2023 December 31, 2022 Deferred revenue at beginning of period $ 2,311,334 $ 1,824,534 Net additions: Deferred software revenues 659,970 427,418 Recognized as revenue: Deferred software revenues 714,952 558,931 Deferred revenue at end of period 2,256,352 1,693,021 Less: current portion 1,562,107 1,097,740 Long-term deferred revenue at end of period $ 694,245 $ 595,281 For the three months ended December 31, 2023 and 2022, the Company recognized revenue of $ 608,843 and $ 506,185 , respectively, that was previously included in the beginning balance of deferred revenues. 19 NOTE 17 – CONTRACT ASSETS AND LIABILITIES Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of the Company’s performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statements of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in the balance sheets under the caption “Contract assets.” Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in the balance sheets under the caption “Contract liabilities.” Conditional retainage represents the portion of the contract price withheld until the work is substantially complete for assurance of the Company’s obligations to complete the job. The following is a summary of the Company’s uncompleted contracts: SCHEDULE OF CONTRACT ASSETS AND LIABILITIES December 31, 2023 December 31, 2022 Costs incurred on uncompleted contracts $ 11,900,894 $ 2,779,408 Estimated gross profit 3,020,654 1,145,663 14,921,548 3,925,071 Applicable billings to date ( 14,216,138 ) ( 4,811,777 ) Net billings in excess of costs, Ending balance $ 705,410 $ ( 886,706 ) December 31, 2023 September 30, 2023 Included in the accompanying balance sheet under the following captions Contract assets, net Costs in excess, net $ 1,593,142 $ 1,680,071 Conditional retainage, net 100,993 59,130 Total contract assets , net $ 1,694,135 $ 1,739,201 Contract liabilities Billings in excess ( 988,725 ) ( 980,319 ) Total contract liabilities $ ( 988,725 ) $ ( 980,319 ) December 31, 2022 September 30, 2022 Included in the accompanying balance sheet under the following captions Contract assets, net Costs in excess, net $ 521,172 $ 781,819 Total contract assets, net $ 521,172 $ 781,819 Contract liabilities Billings in excess ( 1,407,878 ) ( 369,890 ) Total contract liabilities $ ( 1,407,878 ) $ ( 369,890 ) For the three months ended December 31, 2023 and 2022, the Company recognized revenue of $ 791,161 and $ 352,847 , respectively, that was previously included in the beginning balance of contract liabilities. NOTE 18 – 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 the Company . 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 December 31, 2023, and September 30, 2023, there was $ 3,811 and $ 3,806 payable due to Ducon Technologies, Pvt Ltd., which is also owned by Aron Govil, respectively. As of December 31, 2023, and September 30, 2023, there was $ 638,207 and $ 637,208 receivable due from Ducon Technologies, Pvt Ltd., respectively. 20 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. Cemtrex XR, Inc. was purchased for $ 890,000 comprised of $ 75,000 in cash 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, Mr. Govil shall be obligated to pay the difference between $820,000 and the royalties paid. The first Royalty payment is due by March 30, 2024. Cemtrex Advanced Technologies, Inc. was purchased for $10,000 in cash, 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 $5,000,000 with a $10,000,000 cap. Subsequent to the sale of Cemtrex Advanced Technologies, Inc. the business has ceased operations. The company has recognized no gain in relation to the 5 % royalties. As of December 31, 2023, there was $ 638,485 in trade receivables due from these companies. Of these receivables $ 133,778 are related to costs paid by Cemtrex related to payroll during the transition of employees to the new company and subscription services that are set up on auto pay with a credit card. The remaining $ 504,707 is related to services provided by Cemtrex Technologies Pvt. Ltd. in the normal course of business. As of December 31, 2023, there were $ 64,919 in payables due to these companies. As of December 31, 2023, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $ 708,174 , of which $ 220,000 is considered short-term and is presented on the Company’s Condensed Consolidated Balance Sheet under the caption “Trade receivables, net – related party”. NOTE 19 – 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 2.75 years at December 31, 2023, and 3 years at September 30, 2023. Lease liabilities were $ 2,155,559 with $ 728,875 classified as short-term at December 31, 2023, and $ 2,348,689 with $ 741,487 , classified as short-term at September 30, 2023. The weighted average discount rate used to measure lease liabilities was approximately 5.6 % at December 31, 2023, and September 30, 2023. 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. Cash used by operating leases were $ 193,130 , and $ 132,963 for the three months ended December 31, 2023 and 2022. The Company has elected not to recognize lease assets and liabilities for leases with a term of 12 months or less. 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. Short-term rent expense was $ 1,800 for the three months ended December 31, 2023. The Company’s security segment leases approximately 1,037 square feet of office space in Clovis, CA on a month-to-month lease at a rent of $ 5,487 per month. Short-term rent expense was $ 16,461 for the three months ended December 31, 2023. 21 A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at December 31, 2023, is set forth below: SCHEDULE OF RECONCILIATION OF UNDISCOUNTED CASH FLOWS TO OPERATING LEASE LIABILITIES Years ending September 30, Operating Leases 2024 624,469 2025 823,816 2026 621,892 2027 270,742 2028 & Thereafter 51,415 Undiscounted lease payments 2,392,334 Amount representing interest ( 236,775 ) Discounted lease payments $ 2,155,559 Lease costs for the three months ended December 31, 2023, and 2022 are set forth below: SCHEDULE OF LEASE COSTS 2023 2022 For the three months ended December 31, 2023 2022 Lease costs: Operating lease costs 193,432 261,433 Short-term lease costs 18,261 - Total lease cost $ 211,693 $ 261,433 NOTE 20 – LINES OF CREDIT AND LONG-TERM LIABILITIES Revolving line of credit On October 5, 2023, the Company obtained a revolving line of credit in the amount of $ 5,000,000 from Pathward, N.A.. The interest rate will be a rate which is equal to three percentage points ( 3 %) in excess of that rate shown in the Wall Street Journal as the prime rate (the “Effective Rate”) and matures twenty-four months from the closing date. This loan is secured by the Company’s eligible accounts receivable and eligible finished goods inventory. The Company’s ability to borrow against the line of credit is limited by the value of the eligible assets. As of December 31, 2023, the Company had enough eligible assets to access the full credit line. The Company was in compliance with all loan covenants as of December 31, 2023. The funds were used to pay the NIL Funding term loan and will fund operations of the Vicon entity. As of December 31, 2023, this loan had a balance of $ 3,357,324 , with $ 54,400 of unamortized loan origination fees, which is included in “Prepaid expenses” on the accompanying Condensed Consolidated Balance Sheet. There were $ 1,642,676 in available funds as of December 31, 2023. Standstill Agreement On August 31, 2023, the Company and Streeterville Capital, LLC entered into a standstill agreement for the two notes held by Streeterville Capital, LLC. The terms of this agreement are the earlier of (a) the date that is ninety (90) days from the Effective Date, and (b) the date that the Company completes an equity offering on either Form S-1 or Form S-3 (the “Standstill Period”), Streeterville Capital, LLC will not seek to redeem any portion of the Notes, and (c) the Company agrees to prepay to Lender fifty percent (50%) of the net proceeds received by Borrower in connection with all equity financings until such time as Borrower has raised at least $ 5,000,000 in aggregate net proceeds. 22 The following table outlines the Company’s secured liabilities: SCHEDULE OF LINES OF CREDIT AND LIABILITIES December 31, September 30, Interest Rate Maturity 2023 2023 Fulton Bank - $ 360,000 fund equipment for AIS. The Company was in compliance with loan covenants as of December 31, 2023. This loan is secured by certain assets of the Company. SOFR plus 2.37 % ( 7.75 % as of December 31, 2023 and 7.68 % as of September 30, 2023). 1/31/2025 89,125 108,700 Fulton Bank mortgage $ 2,476,000 . The Company was in compliance with loan covenants as of December 31, 2023. This loan is secured by the underlying asset. SOFR plus 2.62 % ( 8.00 % on December 31, 2023 and ( 7.93 % on September 30, 2023). 1/28/2040 2,163,687 2,180,115 Fulton Bank (HEISEY) - $ 1,200,000 mortgage loan; requires monthly principal and interest payments through August 1, 2043 with a final payment of remaining principal on September 1, 2043; The loan is collateralized by 615 Florence Street and 740 Barber Street and guaranteed by AIS and Cemtrex. SOFR plus 2.80 % per annum ( 8.18 % as of December 31, 2023 and 8.11 % as of September 30, 2023). 9/30/2043 1,194,480 1,200,000 Fulton Bank (HEISEY) - $ 2,160,000 . promissory note related to purchase of Heisey; requires 84 monthly principal and interest payments; The note is collateralized by the Heisey assets and guaranteed by the Parent; matures in 2030. SOFR plus 2.80 % per annum ( 8.18 % as of December 31, 2023 and 8.11 % as of September 30, 2023). 7/1/2030 2,063,927 2,122,565 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 , as of December 31, 2023 and September 30, 2023. 8 % 6/30/2024 4,691,520 4,596,589 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 $ 0 as of December 31, 2023 and September 30, 2023. 8 % 2/22/2025 11,475,435 11,243,233 Note Payable - $ 240,000 For the purchase of Heisey Mechanical, Ltd. 6 % 7/1/2024 240,000 240,000 Term Loan Agreement with NIL Funding Corporation (“NIL”) - $ 5,600,000 The Company was in compliance with loan covenants as of September 30, 2023. 11.50 % 12/31/2024 - 1,979,743 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 80,994 91,114 Software License Agreement - $ 1,125,000 , for the purchase of software source code for use in our Security segment products N/A 6/3/2024 450,000 675,000 HDFC Bank Auto Loan - $ 28,331 , for the purchase of automobile at India office. Monthly payments of ₹ 65,179 ($ 784.89 as translated as of December 31, 2023). Automobile is collateral for this loan. 8.70 % 6/5/2027 28,331 - Total secured liabilities $ 22,477,499 $ 24,437,059 Less: Current maturities ( 15,717,081 ) ( 14,507,711 ) Less: Unamortized original issue discount - - Secured liabilities, Long Term $ 6,760,418 $ 9,929,348 NOTE 21 – STOCKHOLDERS’ EQUITY Preferred Stock The Company is authorized to issue 10,000,000 shares of Preferred Stock, $ 0.001 par value. As of December 31, 2023, and September 30, 2023, there were 2,458,053 and 2,343,016 shares issued and 2,393,953 and 2,278,916 shares outstanding, respectively. 23 Series 1 Preferred Stock During the three months ended December 31, 2023, 115,037 shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. As of December 31, 2023, and September 30, 2023, there were 2,408,053 and 2,293,016 shares of Series 1 Preferred Stock issued and 2,343,953 and 2,228,916 shares of Series 1 Preferred Stock outstanding, respectively. Series C Preferred Stock As of December 31, 2023, and September 30, 2023, 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 December 31, 2023, there were 1,055,636 shares issued and outstanding and at September 30, 2023, there were 1,045,783 shares issued and outstanding. During the three months ended December 31, 2023, 9,853 shares of the Company’s common stock have been issued in exchange for services valued at $ 40,000 . NOTE 22 – SHARE-BASED COMPENSATION For the three months ended December 31, 2023, and 2022, the Company recognized $ 7,557 and $ 39,842 of share-based compensation expense on its outstanding options, respectively. As of December 31, 2023, $ 55,748 of unrecognized share-based compensation expense is expected to be recognized over a period of two years. Future compensation amounts will be adjusted for any change in estimated forfeitures. During the three months ended December 31, 2023, no options were granted, cancelled, or forfeited. NOTE 23 – COMMITMENTS AND CONTINGENCIES The Company’s Industrial Services segment 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. From time to time, the Company and its subsidiaries are involved in legal proceedings that are incidental to the operation of our business. The Company continues to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as well as current accruals and insurance coverage, the Corporation does not expect that such legal proceedings will have a material adverse impact on its condensed consolidated financial statements. NOTE 24 – SUBSEQUENT EVENTS Delisting from NASDAQ Capital Market and Repurchase of Series 1 Preferred Stock Subsequent to the balance sheet date, the Company has bought back 71,951 shares for $ 69,705 under the Share Repurchase Program approved on August 22, 2023, that allows the Company to repurchase shares of the Series 1 Preferred Stock through various means, including through privately negotiated transactions and through an open market program. This action proved ineffective to meet the Minimum Bid Price Requirement. The Company’s Series 1 Preferred Stock was suspended from the Nasdaq Capital Market on January 22, 2024. The Series 1 Preferred Stock is now quoted on the OTC Markets under the symbol “CETXP.” Nasdaq informed the Company that Nasdaq will complete the delisting by filing a Form 25 Notification of Delisting with the SEC following the lapse of applicable appeal periods. The Company does not intend to appeal the Panel’s decision. After the Form 25 is filed, the delisting will become effective 10 days later. The deregistration of the Company’s Series 1 Preferred Stock under Section 12(b) of the Exchange Act will be effective for 90 days, or such shorter period as the SEC may determine, after filing of the Form 25. Filing of Registration Statement on Form S-1 On January 17, 2024, the Company filed a preliminary Prospectus on Form S-1 to register shares of our common stock and common stock warrants for sale through a placement agent. 24