Cemtrex Inc: Form 10-Q for the period ended Mar 31, 2025

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.

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, 2024.

Results of Operations – For the three months ended March 31, 2025, and 2024

Revenues

Our Security segment revenues for the three months ended March 31, 2025, increased by $8,896,220 or 110% to $16,981,152 from $8,084,932 for the three months ended March 31, 2024. This increase is due to a large sale valued at $10,375,000 for security technology products under our Vicon brand. This sale represents 61% of the revenue for this segment for the quarter ended March 31, 2025.

Our Industrial Services segment revenues for the three months ended March 31, 2025, increased by $1,194,454 or 13%, to $10,269,117 from $9,074,663, for the three months ended March 31, 2024. This increase is mainly due to increased demand for the segment’s services.

Gross Profit

Gross Profit for the three months ended March 31, 2025, was $12,165,455 or 45% of revenues as compared to gross profit of $6,969,416 or 40% of revenues for the three months ended March 31, 2024.

Gross profit in our Security segment was $8,803,856 or 52% of the segment’s revenues for the three months ended March 31, 2025, as compared to gross profit of $4,112,969 or 51% of the segment’s revenues for the period ended March 31, 2024. Gross profit percentage was up due to the mix of products sold in the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Gross profit in our Industrial Services segment was $3,361,599 or 33% of the segment’s revenues for the three months ended March 31, 2025, as compared to gross profit of $2,826,447 or 31% of the segment’s revenues for the period ended March 31, 2024. Gross profit as a percentage of revenues increased due to improved margins on projects in the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2025, decreased $249,415 or 4% to $6,770,742 from $7,020,157 for the three months ended March 31, 2024. The decrease in general and administrative expenses is mainly related to decreased general and administrative expenses, legal expenses, short-term rent, and travel.

Research and Development Expenses

Research and Development expenses for the three months ended March 31, 2025, were $777,889 compared to $951,400 for the three months ended March 31, 2024, a decrease of $173,511 or 18%. Research and Development expenses are related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.

Other Income/Expense

Other income for the three months ended March 31, 2025, was $4,104,211, as compared to expense of $448,039 for the three months ended March 31, 2024. Other income for the three months ended March 31, 2025, was mainly driven by gains on changes in fair value of warrant liability of $4,707,374 which represents the change in the fair value of the of the warrants unexercised at the measurement period. Other expense for the three months ended March 31, 2024, was mainly driven by interest on the Company’s debt.

Provision for Income Taxes

During the three months ended March 31, 2025, and 2024, the Company had income tax expense from continuing operations of $110,525 and $100,004, 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, 2025, and 2024, was 1.26% and (6.76%) respectively.

Results of Operations – For the six months ended March 31, 2025, and 2024

Revenues

Our Security segment revenues for the six months ended March 31, 2025, increased by $5,182,118 or 30% to $22,434,851 from $17,252,733 for the six months ended March 31, 2024. This increase is due to a large sale valued at $10,375,000 for security technology products under our Vicon brand. This sale represents 46% of the revenue for this segment for the six months ended March 31, 2025.

Our Industrial Services segment revenues for the six months ended March 31, 2025, increased by $1,770,289 or 11%, to $18,555,317 from $16,785,028, for the six months ended March 31, 2024. This increase is mainly due to increased demand for the segment’s services.

Gross Profit

Gross Profit for the six months ended March 31, 2025, was $17,867,391 or 44% of revenues as compared to gross profit of $14,021,815 or 41% of revenues for the six months ended March 31, 2024.

Gross profit in our Security segment was $11,643,615 or 52% of the segment’s revenues for the six months ended March 31, 2025, as compared to gross profit of $8,629,916 or 50% of the segment’s revenues for the period ended March 31, 2024. Gross profit percentage was up due to the mix of products sold in the six months ended March 31, 2025, compared to the six months ended March 31, 2024.

Gross profit in our Industrial Services segment was $6,223,776 or 34% of the segment’s revenues for the six months ended March 31, 2025, as compared to gross profit of $5,391,899 or 32% of the segment’s revenues for the period ended March 31, 2024. Gross profit as a percentage of revenues increased due to improved margins on projects in the six months ended March 31, 2025, compared to the six months ended March 31, 2024.

General and Administrative Expenses

General and administrative expenses for the six months ended March 31, 2025, decreased $128,092 or 1% to $13,864,031 from $13,992,123 for the six months ended March 31, 2024. The decrease in general and administrative expenses is mainly related to decreased salaries, other operating expenses, and travel.

Research and Development Expenses

Research and Development expenses for the six months ended March 31, 2025, were $1,667,972 compared to $1,800,205 for the six months ended March 31, 2024, a decrease of $132,233 or 7%. Research and Development expenses are related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.

Other Income/Expense

Other expense for the six months ended March 31, 2025, was $22,161,046, as compared to $953,311 for the six months ended March 31, 2024. Other income for the six months ended March 31, 2025, was mainly driven by losses on excess fair value of the warrants of $15,796,105 which represents the difference between the fair value of the shares issued and the value of the warrants exercised and losses on changes in fair value of warrant liability of $5,312,838, which represents the change in the fair value of the of the warrants unexercised at the measurement period.

Provision for Income Taxes

During the six months ended March 31, 2025, and 2024, the Company had income tax expense from continuing operations of $231,063 and $170,755, 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, 2025, and 2024, was (1.17%) and (6.27%) 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 $5,037,130 at March 31, 2025, compared to working capital of $8,103,457 at September 30, 2024. This includes cash and equivalents and restricted cash of $6,066,033 at March 31, 2025, and $5,420,392 at September 30, 2024. The decrease in working capital was primarily due to the increase the current maturities of the Company’s long-term liabilities.

Cash provided by operating activities for the six months ended March 31, 2025, was $1,600,532 and used $2,752,236 of cash for the six-month period ended March 31, 2024. Our operating cash flow was mainly the result of our net loss, less the non-cash adjustments, combined with operating changes in inventory, accrued expenses, and contract liabilities.

Trade receivables increased by $1,556,316 or 14% to $12,715,992 at March 31, 2025, from $11,159,676 at September 30, 2024. The increase in trade receivables is attributable to the remaining balance on the large sale in the Security segment, expected to be collected in the next quarter.

Cash used by investing activities for the six months ended March 31, 2025, was $1,436,452 compared to $455,308 used for the six months ended March 31, 2024. Investing activities for the six months ended March 31, 2025, and 2024, 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, 2025, was $1,032,254 compared to $1,250,540 for the six months ended March 31, 2024. Financing activities for the six months ended March 31, 2025, were primarily driven by the proceeds from the Company’s revolving line of credit, note payable, and the exercise of 333,650 Series B Warrants. Financing activities for the six months ended March 31, 2024, were primarily driven by the proceeds from the Company’s revolving line of credit and payments on the Company’s debt.

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 $6,066,033 in cash and cash equivalents and restricted cash as of March 31, 2025. Additionally, the Company has (i) secured a line of credit for its Vicon brand to fund operations, which as of March 31, 2025, has available capacity of approximately 133,000, (ii) continually reevaluated its pricing model on our Vicon brand to improve margins on those products, (iii) entered into a Standstill Agreement with Streeterville Capital, LLC (“Streeterville”) in which Streeterville agreed not to seek to redeem any portion of its two outstanding notes with the Company expiring on April 30, 2025 in exchange, the Company agreed to pay to Streeterville the greater of $4,000,000 or fifty percent (50%) of the net proceeds the Company receives from the sale of any of its common stock or preferred stock during the Standstill Period. To date, the company has paid Streeterville $4,588,897 under this agreement.

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.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2025. Based on their evaluation, our management has concluded that as of March 31, 2025, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the six months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

Our business faces many risks, a number of which are described in the section captioned “Risk Factors” in our Annual Report for the year ended September 30, 2024, filed with the SEC on December 30, 2024 and amended on January 10, 2025 and April 11, 2025. The risks described in our Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report or described below occur, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our Annual Report and below, and the information contained in the section captioned “Forward-Looking Statements” and elsewhere in this Quarterly Report before deciding whether to invest in our securities.

Our operations and performance depend significantly on global and regional economic conditions and adverse economic conditions can adversely affect our business, results of operations and financial condition.

A deterioration in economic conditions and related drivers of global uncertainty and change, such as reduced business activity, high unemployment, rising interest rates, housing prices, and energy prices (including the price of gasoline), increased consumer indebtedness, lack of available credit, the rate of inflation, and perceptions of the economy, as well as other factors, such as terrorist attacks, protests, looting, and other forms of civil unrest, cyber-attacks and data breaches, public health emergencies (such as the COVID-19 pandemic and other epidemics), extreme weather conditions and climate change, significant changes in the political environment, political instability, armed conflict (such as the ongoing military conflict between Ukraine and Russia and the military conflict in Israel and Gaza) and/or public policy, including increased state, local or federal taxation, could adversely affect our operating results and financial condition.

Major public health issues, including pandemics such as the COVID-19 pandemic, have adversely affected, and could in the future materially adversely affect, us due to their impact on the global economy and demand for our products and services; the imposition of protective public safety measures, such as shutdowns and restrictive health mandates; and disruptions in our operations, supply chain and sales and distribution channels, resulting in interruptions to our business and the supply of current products and offering of existing services, and delays in production ramps of new products and development of new services.

In addition to an adverse impact on demand for our products and services, uncertainty about, or a decline in, global or regional economic conditions can have a significant impact on our suppliers, contract manufacturers, logistics providers, distributors, and other channel partners, and developers. Potential outcomes include financial instability, inability to obtain credit to finance business operations, and insolvency.

As a result, our operating results may be impacted by the health of the global economy. Volatility and disruption in global capital and credit markets may lead to slowdowns or declines in client spending which could adversely affect our business and financial performance. Our business and financial performance, including new business bookings and collection of our accounts receivable, may be adversely affected by current and future economic conditions (including a reduction in the availability of credit, higher energy costs, rising interest rates, financial market volatility and lower than expected economic growth) that cause a slowdown or decline in client spending. Reduced purchases by our clients or changes in payment terms could adversely affect our revenue growth and cause a decrease in our cash flow from operations. Bankruptcies or similar events affecting clients may cause us to incur bad debt expense at levels higher than historically experienced. Further, volatility and disruption in global financial markets may also limit our ability to access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing economic and business conditions. Accordingly, if global financial and economic volatility continues or worsens, our business, results of operations and financial condition could be materially and adversely affected.

Adverse economic conditions can also lead to increased credit and collectability risk on our trade receivables, the failure of derivative counterparties and other financial institutions, limitations on our ability to issue new debt, reduced liquidity, and declines in the fair values of our financial instruments. These and other impacts can materially adversely affect our business, results of operations, financial condition and stock price.

Changes in U.S. and international trade policies may adversely impact our business and operating results.

Macroeconomic conditions and international trade policies may adversely impact our business, financial condition, and results of operations. Weak economic conditions or reduced consumer confidence can negatively impact demand for our products, potentially resulting in lower revenues and reduced operating income.

We are also subject to risks arising from U.S. and foreign trade laws and regulations, including tariffs, duties, import restrictions, and changes to trade agreements that affect the products and materials we import. These risks may be heightened by shifts in government policy, including changes resulting from political transitions. For example, the U.S. government has enacted and proposed new tariffs on certain imported goods, and future changes in trade policy—whether through new legislation, administrative action, or retaliatory measures by other countries—could increase our costs or limit our ability to source or sell products across borders.

There is ongoing uncertainty surrounding future trade agreements and tariff policies, including the U.S. relationship with key trading partners such as China, Mexico, and Canada. Any escalation in trade restrictions, imposition of new tariffs or duties, or retaliatory measures by foreign governments could lead to increased costs for our products and materials, disrupt our supply chain, or impact our competitiveness in certain markets. Additionally, changes to workplace regulations, sourcing requirements, or other restrictions tied to trade policy may adversely affect our operations. While we cannot predict the outcome or timing of any future trade policy actions, any such developments could have a material adverse effect on our business, financial condition, results of operations, and cash flows.