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, Industrial Services and Aerospace and Defense. Additionally, the Company’s operational structure also reports unallocated corporate expenses. Security Cemtrex’s Security segment operates under the brand, 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. 32 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 June 30, 2026, and 2025 The Company’s Security segment revenues for the three months ended June 30, 2026, decreased by $1,330,320 or 18% to $6,251,494 from $7,581,814 for the three months ended June 30, 2025. This decrease is mainly due to delays in shipping from increased production time on some of our component products. The Company is currently purchasing additional inventory to overcome this supply issue. The Company’s Industrial Services segment revenues for the three months ended June 30, 2026, increased by $589,948 or 6%, to $9,973,792 from $9,383,844, for the three months ended June 30, 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 $2,202,305 for the three months ended June 30, 2026. There was unallocated revenue to Corporate of $12,619 for the three months ended June 30, 2026. This revenue is related to the Company’s investment in digital assets. Gross Profit Gross Profit for the three months ended June 30, 2026, was $7,696,790 or 42% of revenues as compared to gross profit of $7,370,506 or 43% of revenues for the three months ended June 30, 2025. Gross profit in our Security segment was $3,066,481 or 49% of the segment’s revenues for the three months ended June 30, 2026, as compared to gross profit of $3,953,562 or 52% of the segment’s revenues for the three-month period ended June 30, 2025. Gross profit in our security segment decreased mainly due to increased costs on some of our component products, additionally gross profits have been impacted by tariffs and fuel surcharges on shipping. The Company has applied for tariff refunds and is waiting on the amount to be refunded. Gross profit in our Industrial Services segment was $2,702,441 or 27% of the segment’s revenues for the three months ended June 30, 2026, as compared to gross profit of $3,416,944 or 36% of the segment’s revenues for the three-month period ended June 30, 2025. Gross profit decreased in the three months ended June 30, 2026, compared to the three months ended June 30, 2025, as the Company works to increase efficiency for its recent acquisition, Richland, LLC. Gross profit in the Company’s newly established Aerospace and Defense segment was $1,915,249 or 87% of revenues for the three months ended June 30, 2026. 33 General and Administrative Expenses General and administrative expenses, including depreciation and amortization expenses, for the three months ended June 30, 2026, increased $838,400 or 11% to $8,464,742 from $7,626,342 for the three months ended June 30, 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 June 30, 2026, were $425,190 compared to $386,565 for the three months ended June 30, 2025, an increase of $38,625 or 10%. 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. Other Income/Expense Other expense for the three months ended June 30, 2026, was $3,295,351 as compared to $3,934,931 for the three months ended June 30, 2025. Other expense for the three months ended June 30, 2026, was mainly driven by the change in the fair value of warrant liabilities, and interest expense. Other expense for the three months ended June 30, 2025, was mainly driven by the change in the fair value of warrant liabilities. Provision for Income Taxes During the three months ended June 30, 2026, and 2025, the Company had an income tax benefit from continuing operations of $119,001 and an income tax expense of $14,035, 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 June 30, 2026, and 2025, was 2.65% and (0.31)% respectively. Results of Operations – For the nine months ended June 30, 2026, and 2025 Revenues The Company’s Security segment revenues for the nine months ended June 30, 2026, decreased by $12,477,086 or 42% to $17,539,579 from $30,016,665 for the nine months ended June 30, 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 prior nine-month period ended June 30, 2025. The Company’s Industrial Services segment revenues for the nine months ended June 30, 2026, increased by $3,683,833 or 13%, to $31,622,994 from $27,939,161, for the nine months ended June 30, 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 $3,434,897 for the nine months ended June 30, 2026. There was unallocated revenue to Corporate of $37,418 for the nine months ended June 30, 2026. This revenue is related to the Company’s investment in digital assets. Gross Profit Gross Profit for the nine months ended June 30, 2026, was $20,165,860 or 38% of revenues as compared to gross profit of $25,237,897 or 44% of revenues for the nine months ended June 30, 2025. Gross profit in our Security segment was $7,757,943 or 44% of the segment’s revenues for the nine months ended June 30, 2026, as compared to gross profit of $15,597,177 or 52% of the segment’s revenues for the nine-month period ended June 30, 2025. Gross profit in our security segment decreased as a result of the large sale mentioned above, additionally gross profits have been impacted by increased costs, tariffs and fuel surcharges on shipping. The Company is currently evaluating the potential impact of tariff refunds on future gross profit percentages. 34 Gross profit in our Industrial Services segment was $9,934,435 or 31% of the segment’s revenues for the nine months ended June 30, 2026, as compared to gross profit of $9,640,720 or 35% of the segment’s revenues for the nine-month period ended June 30, 2025. Gross profit increased in the nine months ended June 30, 2026, compared to the nine months ended June 30, 2025, mainly due to the acquisition of Richland, LLC. Gross profit in the Company’s newly established Aerospace and Defense segment was $2,436,064 or 71% of revenues for the nine months ended June 30, 2026 General and Administrative Expenses General and administrative expenses, including depreciation and amortization expenses, for the nine months ended June 30, 2026, increased $3,373,343 or 16% to $24,863,716 from $21,490,373 for the nine months ended June 30, 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 nine months ended June 30, 2026, were $1,473,483 compared to $2,054,537 for the nine months ended June 30, 2025, a decrease of $581,054, or 28%. 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 this 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 Richland acquisition. Other Income/Expense Other expense for the nine months ended June 30, 2026, was $17,343,292, as compared to $26,095,977 for the nine months ended June 30, 2025. Other expense for the nine months ended June 30, 2026, was mainly driven by interest expense related to the discount on common shares issued for the relief on notes payable, loss on the exercise of warrant liabilities, and the change in the fair value of the Company’s digital assets. Other expense for the nine months ended June 30, 2025, was mainly driven by the loss on excess fair value of warrant liabilities. Provision for Income Taxes During the nine months ended June 30, 2026, and 2025, the Company had income tax expense from continuing operations of $221,184 and $245,098, 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 nine months ended June 30, 2026, and 2025, was (0.94%) and (1.00%) 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. 35 Liquidity and Capital Resources Working capital was $13,155,389 at June 30, 2026, compared to working capital of $5,184,339 at September 30, 2025. This includes cash and cash equivalents and restricted cash of $9,301,740 at June 30, 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 nine months ended June 30, 2026, was $4,900,015 compared to providing $3,410,782 for the nine months ended June 30, 2025. Our operating cash flow was mainly the result of our net loss, less the non-cash adjustments, combined with operating changes in inventory, contract assets, prepaid expenses and other current assets, accounts payable, operating lease liabilities, accrued expenses, and deferred revenues. Trade receivables decreased by $613,244 or 5% to $12,520,180 at June 30, 2026, from $13,133,424 at September 30, 2025. The decrease in trade receivables is attributable to the decrease in sales in the Security segment. Cash used by investing activities for the nine months ended June 30, 2026, was $13,278,551 compared to $1,482,232 for the nine months ended June 30, 2025. Investing activities for the nine months ended June 30, 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 nine months ended June 30, 2025, were driven by the Company’s purchase of property and equipment and investment in Masterpiece VR. Cash provided by financing activities for the nine months ended June 30, 2026, was $21,151,864 compared to $1,117,811 for the nine months ended June 30, 2025. Financing activities for the nine months ended June 30, 2026, were primarily driven by the proceeds from equity offerings, proceeds of notes payable and bank loans, and proceeds from the exercise of the Company’s Series B Warrants. Financing activities for the nine months ended June 30, 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 $9,301,740 in cash and cash equivalents and restricted cash as of June 30, 2026. Additionally, the Company has (i) secured a line of credit for its Vicon brand to fund operations, which as of June 30, 2026, has available capacity of approximately $622,106, (ii) continually reevaluate our pricing model on our Vicon brand to improve margins on those products, (iii) raised $5,787,831 through the exercise of our Series B warrants during the nine months ended June 30, 2026 (iv) raised $10,000,000 in gross proceeds in equity offering during the nine months ended June 30, 2026. 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. 36