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. 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 from a small environmental monitoring instruments company into a world leading multi-industry technology company. The Company drives innovation in a wide range of sectors, including smart technology, virtual and augmented realities, advanced electronic systems, industrial solutions, and intelligent security systems. 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 continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives and positioned to maximize growth and return in the coming years. During fiscal 2019, the Company made a strategic decision to exit its Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. Accordingly, the Company has reported the results of the Electronics Manufacturing business as discontinued operations in the Consolidated Statements of Income and in the Consolidated Balance Sheets. These changes have been applied for all periods presented. During fiscal 2019, the Company also reached a strategic decision to exit the environmental products business which was part of Industrial Services group. Accordingly, the Company has reported the results of the environmental control products business as discontinued operations in the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) and in the Condensed Consolidated Statements of Cash Flows.

Now the Company has two business segments, consisting of (i) Advanced Technologies (AT) and (ii) Industrial Services (IS)





Advanced Technologies (AT)

Cemtrex's Advanced Technologies segment delivers cutting-edge technologies in the IoT, Wearables and Smart Devices, such as the SmartDesk. Through the Company's advanced engineering and product design, they deliver progressive design and development solutions to create impactful experiences for mobile, web, virtual and augmented reality, wearables and television as well as providing cutting edge, mission critical security and video surveillance. Through its Cemtrex VR division, the Company is developing a wide variety of applications for virtual and augmented reality markets.

The AT business segment also includes the Company's majority owned subsidiary, Vicon Industries, 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 facial 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.





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Industrial Services (IS)

Cemtrex's IS segment, offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals among others. We are a leading provider of reliability-driven maintenance and contracting solutions for the 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, 2019.

Results of Operations - For the three months ending December 31, 2019 and 2018

Total revenue for the three months ended December 31, 2019 and 2018 was $12,220,083 and $5,717,589, respectively, an increase of $6,502,494, or 114%. Loss from continuing operations for the three months ended December 31, 2019 and 2018 was $139,254 and $1,995,094, respectively, a decrease of $1,855,790, or 93%. Total revenue for the quarter increased, as compared to total revenue in the same period last year, due to the consolidation of Vicon Industries, Inc. and sales and other increases in the Advanced Technology Segment. Loss from continuing operations decreased due to reorganization and cost saving measures enacted by management in the last fiscal year.





Revenues

Our Advanced Technologies segment revenues for the three months ended December 31, 2019, increased by $6,757,398 or 1,444% to $7,225,233 from $467,835 for the three months ended December 31, 2018. This increase represents mainly the consolidation of Vicon Industries, Inc.

Our Industrial Services segment revenues for the three months ended December 31, 2019, decreased by $254,904 or 5%, to $4,994,850 from $5,249,754 for the three months ended December 31, 2018. The decrease was primarily due to the timing and recognition of revenue.





Gross Profit

Gross Profit for the three months ended December 31, 2019 was $5,348,486 or 44% of revenues as compared to gross profit of $2,187,586 or 38% of revenues for the three months ended December 31, 2018. Gross profit increased in the three months ended December 31, 2019, compared to the three months ended December 31, 2018 due to a shift by management in the last fiscal year to focus on products with higher gross margins. The Company's gross profit margins vary from product to product and from customer to customer.





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General and Administrative Expenses

General and administrative expenses for the three months ended December 31, 2019 increased $1,518,396 or 46% to $4,852,957 from $3,334,561 for the three months ended December 31, 2018. General and administrative expenses as a percentage of revenue was 40% and 58% of revenues for the three-month periods ended December 31, 2019 and 2018. The increases in General and Administrative Expenses in dollars is the result of the Consolidation of Vicon Industries, Inc. The decrease in General and Administrative Expenses as a percentage of revenue is the result of reduction in overhead expenses.

Research and Development Expenses

Research and Development expenses for the three months ended December 31, 2019 was $376,586 compared to $379,517 for the three months ended December 31, 2018. Research and Development expenses are primarily related to the Advanced Technologies Segment's development of proprietary technology and further developments of the SmartDesk and video surveillance software.





Other Income/(Expense)

Other income/(expense) for the first quarter of fiscal 2020 was $(258,197) as compared to $(468,602) for the first quarter of fiscal 2019. Other income/(Expense) for the three months ended December 31, 2019 was primarily due to interest expense offset by one-time other income generated by the settlement of certain accounts payable.

Provision for Income Taxes

During the first quarter of fiscal 2012 no income tax benefit or provision was recorded compared to a benefit of $50 for the first quarter of fiscal 2019. The provision for income tax is based upon the projected income tax from the Company's various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions.





Comprehensive income/loss

The Company had a comprehensive loss of $829,218 or 7% of revenues, for the three-month period ended December 31, 2019 as compared to a comprehensive loss of $3,991,630 or 70% of revenues, for the three months ended December 31, 2018. Comprehensive loss decreased in the first quarter as compared to comprehensive loss in the same period last year, as a result of reduction of general and administrative expenses.





Effects of Inflation

The Company's business and operations have not been materially affected by inflation during the periods for which financial information is presented.

Liquidity and Capital Resources

Working capital was $3,495,438 at December 31, 2019 compared to $3,240,348 at September 30, 2019. This includes cash and equivalents and restricted cash of $5,197,227 at December 31, 2019 and $2,858,085 at September 30, 2019, respectively. The increase in working capital was primarily due to the increase in the Company's current assets of $2,894,782 offset by an increase in the Company's current liabilities of $2,639,692.

Accounts receivable increased $192,375 or 3% to $6,651,359 at December 31, 2019 from $6,458,984 at September 30, 2019. The increase in accounts receivable is attributable to higher sales in the first quarter of fiscal year 2020 as compared to the fourth quarter of fiscal year 2019.

Inventories increased $65,737 or 1% to $5,272,892 at December 31, 2019 from $5,207,155 at September 30, 2019. The increase inventories is attributable to the purchase of inventories to fulfill sales bookings not shipped in the first quarter.

Operating activities used $840,949 of cash for the three months ended December 31, 2019 compared to providing $1,226,718 of cash for the nine months ended December 31, 2018. The decrease in operating cash flows was primarily due to the increase in operating assets, as compared to the same period a year ago. Discontinued operations for the three months ended December 31, 2018 provided cash of $4,575,628.





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Investment activities used $166,519 of cash for the three months ended December 31, 2019 compared to using cash of $428,879 during the three-month period ended December 31, 2018. Investing activities for the first quarter of fiscal year 2020 were driven by the Company's investment in fixed assets offset by proceeds from the sale of marketable securities. Discontinued operations for the three months ended December 31, 2018 used cash of $119,482.

Financing activities provided $2,782,103 of cash in the three-month period ended December 31, 2019 as compared to using cash of $1,607,752 in the three-month period ended December 31, 2018. Financing activities were primarily driven by proceeds from notes payable and proceeds from securities purchase agreements offset by payments on bank loans, notes payable, expenses of notes payable and equity offerings, and use of the Company's revolving credit lines. Discontinued operations for the three months ended December 31, 2018 used cash of $2,925,581.

We believe that our cash on hand and cash generated by operations is sufficient to meet the capital demands of our current operations during the 2020 fiscal year (ending September 30, 2020). Any major increases in sales, particularly in new products, may require substantial capital investment. Failure to obtain sufficient capital could materially adversely impact our growth potential.

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 expansion goals and working capital needs.

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