CEMTREX INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; the impact of competitive products and their pricing; unexpected manufacturing or supplier problems; the Company’s ability to maintain sufficient credit arrangements; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the Company’s SEC reports, including its recent report on Form 10-K. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments. General Overview 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. Additionally, the Company’s operational structure also reports unallocated corporate expenses. 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. Aerospace and Defense Cemtrex’s Aerospace and Defense segment operates under the brand Invocon, which offers designing, manufacturing, and supporting advanced instrumentation, wireless sensing, and telemetry systems deployed across satellites, launch vehicles, target missiles, and space-based platforms. Its technologies support numerous government and prime contractor programs, including multiple Space Shuttle and International Space Station systems, and the company maintains long-standing relationships across the Missile Defense Agency and leading aerospace and defense primes. 33 Significant Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations. Certain of our accounting policies are deemed “significant”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective, or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our significant accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2025. Results of Operations – For the three months ended March 31, 2026, and 2025 Revenues The Company’s Security segment revenues for the three months ended March 31, 2026, decreased by $11,204,595 or 66% to $5,776,557 from $16,981,152 for the three months ended March 31, 2025. This decrease is mainly due to a large sale valued at $10,375,000 for security technology products under our Vicon brand during the quarter ended March 31, 2025. The Company’s Industrial Services segment revenues for the three months ended March 31, 2026, increased by $768,929 or 7%, to $11,038,046 from $10,269,117, for the three months ended March 31, 2025. This increase is mainly due to the revenues from the acquisition of Richland, LLC. The Company’s newly established Aerospace and Defense segment generated revenues of $1,232,592 for the three months ended March 31, 2026 There was unallocated revenue under the Corporate segment of $14,172 for the three months ended March 31, 2026. This revenue is related to the Company’s investment in digital assets. Gross Profit Gross Profit for the three months ended March 31, 2026, was $6,847,204 or 38% of revenues as compared to gross profit of $12,165,455 or 45% of revenues for the three months ended March 31, 2025. Gross profit in our Security segment was $2,530,694 or 44% of the segment’s revenues for the three months ended March 31, 2026, as compared to gross profit of $8,803,856 or 52% of the segment’s revenues for the period ended March 31, 2025. Gross profit in our security segment decreased as a result of the large sale mentioned above, additionally gross profits have been impacted by tariffs and fuel surcharges on shipping. The Company is currently evaluating the potential impact of tariff refunds on future gross profit percentages. Gross profit in our Industrial Services segment was $3,781,523 or 34% of the segment’s revenues for the three months ended March 31, 2026, as compared to gross profit of $3,361,599 or 33% of the segment’s revenues for the period ended March 31, 2025. Gross profit increased in the three months ended March 31, 2026, compared to the three months ended March 31, 2025, was mainly due to the acquisition of Richland, LLC which lowered outsourcing costs now provided by AIS – TN, formerly Richland LLC. Gross profit in the Company’s newly established Aerospace and Defense segment was 520,815 or 42% of revenues for the three months ended March 31, 2026 34 General and Administrative Expenses General and administrative expenses for the three months ended March 31, 2026, increased $1,701,641 or 25% to $8,472,383 from $6,770,742 for the three months ended March 31, 2025. The increase in general and administrative expenses is mainly related to the additional expenses related to the acquisition of Invocon and Richland. Research and Development Expenses Research and Development expenses for the three months ended March 31, 2026, were $546,858 compared to $777,889 for the three months ended March 31, 2025, a decrease of $231,031 or 30%. Research and Development expenses are related to the Security segment’s development of next generation solutions associated with security and surveillance systems software and the Aerospace and Defense segment’s development and improvement of their products. Bargain Purchase Gain As discussed in Note 1 of the Form 10-Q, the acquisition of Richland, LLC resulted in a bargain purchase gain of 2,068,047 based on the preliminary purchase price allocation. The purchase price allocation is still preliminary but has been developed based on an estimate of fair values of Richland’s identifiable tangible and intangible assets acquired and liabilities assumed as of February 5, 2026. The final allocation of the purchase price will be determined within one year from the closing date of the Invocon acquisition. Other Income/Expense Other income for the three months ended March 31, 2026, was $3,467,711, as compared to $4,104,211 for the three months ended March 31, 2025. Other income for the three months ended March 31, 2026, was mainly driven by the bargain purchase gain mentioned above, gain on the exercise of warrant liabilities and the change in the fair value of warrant liabilities, offset by interest expense and the change in the fair value of the Company’s digital assets. Other income for the three months ended March 31, 2025, was mainly driven by the change in the fair value of warrant liabilities. Provision for Income Taxes During the three months ended March 31, 2026, and 2025, the Company had income tax expense from continuing operations of $73,859 and $110,525, respectively. The provision for income tax is estimated based upon the current income projections of the Company, the effective rate of the prior year, and the Company’s current ability to utilize net loss carryforwards. The Company’s effective tax rate for the three months ended March 31, 2026, and 2025, was 5.7% and 1.27% respectively. Results of Operations – For the six months ended March 31, 2026, and 2025 Revenues The Company’s Security segment revenues for the six months ended March 31, 2026, decreased by $11,146,766 or 50% to $11,288,085 from $22,434,851 for the six months ended March 31, 2025. This decrease is mainly due to a large sale valued at $10,375,000 for security technology products under our Vicon brand during the quarter ended March 31, 2025. 35 The Company’s Industrial Services segment revenues for the six months ended March 31, 2026, increased by $3,093,885 or 17%, to $21,649,202 from $18,555,317, for the six months ended March 31, 2025. This increase is mainly due to the revenues from the acquisition of Richland LLC. The Company’s newly established Aerospace and Defense segment generated revenues of $1,232,592 for the six months ended March 31, 2026 There was unallocated revenue under the Corporate segment of $24,799 for the six months ended March 31, 2026. This revenue is related to the Company’s investment in digital assets. Gross Profit Gross Profit for the six months ended March 31, 2026, was $12,469,070 or 36% of revenues as compared to gross profit of $17,867,391 or 44% of revenues for the six months ended March 31, 2025. Gross profit in our Security segment was $4,691,462 or 42% of the segment’s revenues for the six months ended March 31, 2026, as compared to gross profit of $11,643,615 or 52% of the segment’s revenues for the period ended March 31, 2025. Gross profit in our security segment decreased as a result of the large sale mentioned above, additionally gross profits have been impacted by tariffs and fuel surcharges on shipping. The Company is currently evaluating the potential impact of tariff refunds on future gross profit percentages. Gross profit in our Industrial Services segment was $7,231,994 or 33% of the segment’s revenues for the six months ended March 31, 2026, as compared to gross profit of $6,223,776 or 34% of the segment’s revenues for the period ended March 31, 2025. Gross profit increased in the six months ended March 31, 2026, compared to the six months ended March 31, 2025, was mainly due to the acquisition of Richland, LLC which lowered outsourcing costs now provided by AIS – TN, formerly Richland LLC. Gross profit in the Company’s newly established Aerospace and Defense segment was 520,815 or 42% of revenues for the six months ended March 31, 2026 General and Administrative Expenses General and administrative expenses for the six months ended March 31, 2026, increased $2,534,943 or 18% to $16,398,974 from $13,864,031 for the six months ended March 31, 2025. The increase in general and administrative expenses is mainly related to the additional expenses related to the acquisition of Invocon and Richland. Research and Development Expenses Research and Development expenses for the six months ended March 31, 2026, were $1,048,293 compared to $1,667,972 for the six months ended March 31, 2025, a decrease of $619,697or 37%. Research and Development expenses are related to the Security segment’s development of next generation solutions associated with security and surveillance systems software and the Aerospace and Defense segment’s development and improvement of their products. Bargain Purchase Gain As discussed in Note 1 of the Form 10-Q, the acquisition of Richland, LLC resulted in a bargain purchase gain of 2,068,047 based on the preliminary purchase price allocation. The purchase price allocation is still preliminary but has been developed based on an estimate of fair values of Richland’s identifiable tangible and intangible assets acquired and liabilities assumed as of February 5, 2026. The final allocation of the purchase price will be determined within one year from the closing date of the Invocon acquisition. Other Income/Expense Other expense for the six months ended March 31, 2026, was $14,047,941, as compared to $22,161,046 for the six months ended March 31, 2025. Other expense for the six months ended March 31, 2026, was mainly driven by the bargain purchase gain mentioned above, loss on the exercise of warrant liabilities, interest expense, and the change in the fair value of the Company’s digital assets. Other expense for the six months ended March 31, 2025, was mainly driven by the loss on excess fair value and change in the fair value of warrant liabilities. 36 Provision for Income Taxes During the six months ended March 31, 2026, and 2025, the Company had income tax expense from continuing operations of $340,185 and $231,063, respectively. The provision for income tax is estimated based upon the current income projections of the Company, the effective rate of the prior year, and the Company’s current ability to utilize net loss carryforwards. The Company’s effective tax rate for the six months ended March 31, 2026, and 2025, was (1.79%) and (1.17%) respectively. Effects of Inflation The Company’s business and operations have been affected by inflation during the periods for which financial information is presented. In response, the Company has instituted price increases and initiated cost-saving measures to mitigate the effects of inflation on operations. Liquidity and Capital Resources Working capital was $13,706,571 at March 31, 2026, compared to working capital of $5,184,339 at September 30, 2025. This includes cash and cash equivalents and restricted cash of $7,910,118 at March 31, 2026, and $6,347,041 at September 30, 2025. The increase in working capital was primarily due to cash raised in the equity offerings and Series B Warrant exercises and the payment of the Company’s debt through equity. Cash used by operating activities for the six months ended March 31, 2026, was $5,310,446 compared to providing $1,600,532 for the six months ended March 31, 2025. Our operating cash flow was mainly the result of our net loss, less the non-cash adjustments, combined with operating changes in contract assets, prepaid expenses and other current assets, accounts payable, operating lease liabilities, accrued expenses, and deferred revenues. Trade receivables increased by $192,135 or 1% to $13,325,559 at March 31, 2026, from $13,133,424 at September 30, 2025. The modest increase in trade receivables is attributable to the acquisitions of Richland and Invocon. Cash used by investing activities for the six months ended March 31, 2026, was $13,972,452 compared to $1,436,452 for the three months ended March 31, 2025. Investing activities for the six months ended March 31, 2026, were driven by the Company’s purchase of property and equipment, investment in marketable securities, the acquisition of Richland and Invocon, and investment in digital assets. Investing activities for the six months ended March 31, 2025, were driven by the Company’s purchase of property and equipment and investment in Masterpiece VR. Cash provided by financing activities for the six months ended March 31, 2026, was $20,871,752 compared to $1,032,254 for the six months ended March 31, 2025. Financing activities for the six months ended March 31, 2026, were primarily driven by the proceeds from equity offerings, proceeds of notes payable, and proceeds from the exercise of the Company’s Series B Warrants. Financing activities for the six months ended March 31, 2025, were primarily driven by the proceeds from the Company’s revolving line of credit, notes payable, and proceeds from the exercise of the Company’s Series B Warrants. The Company’s working capital may not be sufficient to cover operating costs which indicates 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 $7,910,118 in cash and cash equivalents and restricted cash as of March 31, 2026. Additionally, the Company has (i) secured a line of credit for its Vicon brand to fund operations, which as of March 31, 2026, has available capacity of approximately $1,100,000, (ii) continually reevaluate our pricing model on our Vicon brand to improve margins on those products, (iii) raised $5,675,332 through the exercise of our Series B warrants during the six months ended March 31, 2026 (iv) raised $10,000,000 in gross proceeds in equity offering during the six months ended March 31, 2026 (v) Invested approximately $5,000,000 of the Company’s surplus cash in various marketable securities to generate income on those investments. 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. Each segment of the Company’s operations has positioned itself for growth and the Company’s long-term objectives include increasing marketing and sales for the Company’s products and services in each segment, increasing the Company’s presence through collaboration partnerships in each segment and through strategic acquisitions of complementary businesses for each segment. These long-term objectives will require sufficient cash to complete, and the Company expects to fund these objectives with cash on hand, issuance of debt, and from proceeds from the sale of the Company’s securities, which may not be sufficient to fully implement our growth initiatives. The unaudited condensed consolidated financial statements do not include any adjustments relating to this uncertainty. 37