UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the quarterly period ended June 30, 2022March 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the transition period from ___________to ____________
Commission File Number 001-37464
CEMTREX, INC.
(Exact name of registrant as specified in its charter)
Delaware | 30-0399914 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
631-756-9116
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered | ||
Common Stock | CETX | Nasdaq Capital Market | ||
Series 1 Preferred Stock | CETXP | Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ | Yes | ☐ | No |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ | Yes | ☐ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ | Yes | ☒ | No |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of August 12, 2022,May 8, 2023, the issuer had shares of common stock issued and outstanding.
Table of Contents
CEMTREX, INC. AND SUBSIDIARIES
INDEX
2 |
Part I. Financial Information
Item 1. Financial Statements
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited) | (Unaudited) | |||||||||||||||
June 30, | September 30, | March 31, | September 30, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and equivalents | $ | 11,442,487 | $ | 15,426,976 | $ | 6,634,037 | $ | 9,895,761 | ||||||||
Restricted cash | 1,518,720 | 1,759,347 | 645,297 | 1,577,915 | ||||||||||||
Short-term investments | 280,571 | 14,981 | 13,663 | 13,721 | ||||||||||||
Trade receivables, net | 7,564,382 | 7,810,896 | 7,271,488 | 5,399,216 | ||||||||||||
Trade receivables - related party | 1,472,514 | 1,487,155 | 408,464 | - | ||||||||||||
Trade receivables, net | 408,464 | - | ||||||||||||||
Inventory –net of allowance for inventory obsolescence | 8,458,530 | 5,657,287 | 8,561,026 | 8,487,817 | ||||||||||||
Prepaid expenses and other assets | 2,407,116 | 2,585,652 | 2,588,400 | 2,421,644 | ||||||||||||
Assets of discontinued operations | - | 3,971,693 | ||||||||||||||
Total current assets | 33,144,320 | 34,742,294 | 26,122,375 | 31,767,767 | ||||||||||||
Property and equipment, net | 6,239,239 | 6,738,944 | 5,052,796 | 5,280,442 | ||||||||||||
Right-of-use assets | 2,641,960 | 2,940,127 | 2,297,293 | 2,641,198 | ||||||||||||
Royalties receivable - related party | 678,330 | - | ||||||||||||||
Note receivable - related party | 761,585 | 761,585 | ||||||||||||||
Goodwill | 7,821,283 | 7,821,283 | 3,906,891 | 3,906,891 | ||||||||||||
Other | 1,356,766 | 697,240 | 1,584,910 | 1,399,745 | ||||||||||||
Total Assets | $ | 51,203,568 | $ | 52,939,888 | $ | 40,404,180 | $ | 45,757,628 | ||||||||
Liabilities & Stockholders’ Equity (Deficit) | ||||||||||||||||
Liabilities & Stockholders’ Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 3,307,521 | $ | 3,050,937 | ||||||||||||
Accounts payable - related party | 3,368 | 19,133 | ||||||||||||||
Accounts payable | $ | 5,401,538 | $ | 4,235,002 | ||||||||||||
Short-term liabilities | 17,146,234 | 9,977,972 | 16,441,488 | 16,894,743 | ||||||||||||
Lease liabilities - short-term | 819,488 | 830,791 | 732,680 | 754,495 | ||||||||||||
Deposits from customers | 113,106 | 536,220 | 74,762 | 73,144 | ||||||||||||
Accrued expenses | 1,176,787 | 1,621,053 | 3,062,806 | 2,271,188 | ||||||||||||
Deferred revenue | 2,594,517 | 2,004,170 | 2,058,661 | 1,551,088 | ||||||||||||
Accrued income taxes | 141,465 | 448,194 | 57,150 | 94,848 | ||||||||||||
Liabilities of discontinued operations | - | 805,219 | ||||||||||||||
Total current liabilities | 27,393,135 | 19,653,402 | 25,738,436 | 25,514,795 | ||||||||||||
Long-term liabilities | ||||||||||||||||
Loans payable to bank | 141,239 | 767,279 | 73,407 | 110,331 | ||||||||||||
Long-term lease liabilities | 1,799,002 | 2,017,408 | 1,564,613 | 1,822,468 | ||||||||||||
Notes payable | 228,893 | 2,350,000 | 1,604,743 | - | ||||||||||||
Mortgage payable | 2,184,404 | 2,257,785 | 2,125,864 | 2,160,169 | ||||||||||||
Other long-term liabilities | 825,629 | 839,171 | 575,900 | 807,898 | ||||||||||||
Paycheck Protection Program Loans | 97,120 | 1,032,200 | 70,816 | 97,120 | ||||||||||||
Deferred Revenue - long-term | 584,003 | 467,967 | 581,193 | 607,309 | ||||||||||||
Total long-term liabilities | 5,860,290 | 9,731,810 | 6,596,536 | 5,605,295 | ||||||||||||
Total liabilities | 33,253,425 | 29,385,212 | 32,334,972 | 31,120,090 | ||||||||||||
Commitments and contingencies | - | - | - | - | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Preferred stock , $10 per share) | par value, shares authorized, Series 1, shares authorized, shares issued and shares outstanding as of June 30, 2022 and shares issued and shares outstanding as of September 30, 2021 (liquidation value of $2,079 | 1,885 | ||||||||||||||
Series C, | shares authorized, shares issued and outstanding at June 30, 2022 and September 30, 202150 | 50 | ||||||||||||||
Common stock, $ | par value, shares authorized, shares issued and outstanding at June 30, 2022 and shares issued and outstanding at September 30, 202126,263 | 20,782 | ||||||||||||||
Preferred stock , $10 per share) | par value, shares authorized, Series 1, shares authorized, shares issued and shares outstanding as of March 31, 2023 and shares issued and shares outstanding as of September 30, 2022 (liquidation value of $2,183 | 2,079 | ||||||||||||||
Series C, | shares authorized, shares issued and outstanding at March 31 31, 2023 and September 30, 202250 | 50 | ||||||||||||||
Common stock, $ | par value, shares authorized, shares issued and outstanding at March 31, 2023 and shares issued and outstanding at September 30, 2022828 | 755 | ||||||||||||||
Additional paid-in capital | 66,522,085 | 61,727,834 | 67,042,743 | 66,641,698 | ||||||||||||
Retained earnings (accumulated deficit) | (51,788,053 | ) | (41,908,062 | ) | ||||||||||||
Treasury stock at cost | (148,291 | ) | (148,291 | ) | ||||||||||||
Accumulated other comprehensive income (loss) | 2,555,441 | 2,896,452 | ||||||||||||||
Accumulated deficit | (61,801,025 | ) | (54,929,020 | ) | ||||||||||||
Treasury stock, | shares of Series 1 Preferred Stock at March 31, 2023 and September 30, 2022(148,291 | ) | (148,291 | ) | ||||||||||||
Accumulated other comprehensive income | 2,283,876 | 2,377,525 | ||||||||||||||
Total Cemtrex stockholders’ equity | 17,169,574 | 22,590,650 | 7,380,364 | 13,944,796 | ||||||||||||
Non-controlling interest | 780,569 | 964,026 | 688,844 | 692,742 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 51,203,568 | $ | 52,939,888 | $ | 40,404,180 | $ | 45,757,628 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and
(Unaudited)
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
For the three months ended | For the six months ended | |||||||||||||||
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
Revenues | $ | 16,073,397 | $ | 11,746,017 | $ | 28,043,639 | $ | 21,159,412 | ||||||||
Cost of revenues | 8,734,916 | 7,976,236 | 15,662,543 | 14,167,381 | ||||||||||||
Gross profit | 7,338,481 | 3,769,781 | 12,381,096 | 6,992,031 | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative | 5,318,267 | 5,424,669 | 10,482,605 | 10,713,844 | ||||||||||||
Research and development | 1,615,341 | 1,239,334 | 3,445,054 | 2,471,008 | ||||||||||||
Total operating expenses | 6,933,608 | 6,664,003 | 13,927,659 | 13,184,852 | ||||||||||||
Operating income/(loss) | 404,873 | (2,894,222 | ) | (1,546,563 | ) | (6,192,821 | ) | |||||||||
Other income/(expense) | ||||||||||||||||
Other income | 376,504 | 90,922 | 359,421 | 1,021,060 | ||||||||||||
Interest expense | (1,335,138 | ) | (1,313,483 | ) | (2,463,372 | ) | (2,715,887 | ) | ||||||||
Total other expense, net | (958,634 | ) | (1,222,561 | ) | (2,103,951 | ) | (1,694,827 | ) | ||||||||
Net loss before income taxes | (553,761 | ) | (4,116,783 | ) | (3,650,514 | ) | (7,887,648 | ) | ||||||||
Income tax benefit/(expense) | - | - | - | - | ||||||||||||
Loss from Continuing operations | (553,761 | ) | (4,116,783 | ) | (3,650,514 | ) | (7,887,648 | ) | ||||||||
Income/(loss) from discontinued operations, net of tax | 14,232 | (685,140 | ) | (3,225,389 | ) | (1,444,098 | ) | |||||||||
Net loss | (539,529 | ) | (4,801,923 | ) | (6,875,903 | ) | (9,331,746 | ) | ||||||||
Less income/(loss) in noncontrolling interest | 55,265 | (80,676 | ) | (3,898 | ) | (132,548 | ) | |||||||||
Net loss attributable to Cemtrex, Inc. shareholders | $ | (594,794 | ) | $ | (4,721,247 | ) | $ | (6,872,005 | ) | $ | (9,199,198 | ) | ||||
Income (loss) per share - Basic & Diluted | ||||||||||||||||
Continuing Operations | $ | (0.75 | ) | $ | (5.86 | ) | $ | (4.63 | ) | $ | (11.51 | ) | ||||
Discontinued Operations | $ | 0.02 | $ | (1.00 | ) | $ | (4.09 | ) | $ | (2.14 | ) | |||||
Weighted Average Number of Shares-Basic & Diluted | 815,498 | 688,255 | 788,265 | 673,943 | ||||||||||||
Weighted Average Number of Shares-Diluted | 815,498 | 688,255 | 788,265 | 673,943 |
4 |
Condensed Consolidated Statements of Comprehensive Income/(Loss)Loss
(Unaudited)
For the three months ended | For the nine months ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Revenues | 13,630,846 | 10,326,431 | 37,031,550 | 28,422,892 | ||||||||||||
Cost of revenues | 7,754,490 | 6,198,715 | 23,233,389 | 16,360,822 | ||||||||||||
Gross profit | 5,876,356 | 4,127,716 | 13,798,161 | 12,062,070 | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative | 6,948,959 | 5,670,019 | 20,318,196 | 16,337,200 | ||||||||||||
Research and development | 1,048,246 | 757,966 | 3,474,674 | 2,033,688 | ||||||||||||
Total operating expenses | 7,997,205 | 6,427,985 | 23,792,870 | 18,370,888 | ||||||||||||
Operating income/(loss) | (2,120,849 | ) | (2,300,269 | ) | (9,994,709 | ) | (6,308,818 | ) | ||||||||
Other income/(expense) | ||||||||||||||||
Other income/(expense) | 2,072,265 | 3,901,658 | 3,337,365 | 6,532,590 | ||||||||||||
Settlement Agreement - Related Party | - | - | - | 3,674,165 | ||||||||||||
Interest Expense | (931,059 | ) | (433,009 | ) | (3,654,045 | ) | (1,891,026 | ) | ||||||||
Total other income/(expense), net | 1,141,206 | 3,468,649 | (316,680 | ) | 8,315,729 | |||||||||||
Net loss before income taxes | (979,643 | ) | 1,168,380 | (10,311,389 | ) | 2,006,911 | ||||||||||
Income tax benefit/(expense) | 247,941 | (40,759 | ) | 247,941 | (168,190 | ) | ||||||||||
Net income/(loss) | (731,702 | ) | 1,127,621 | (10,063,448 | ) | 1,838,721 | ||||||||||
Less loss in noncontrolling interest | (50,909 | ) | 29,608 | (183,457 | ) | (20,813 | ) | |||||||||
Net income/(loss) attributable to Cemtrex, Inc. shareholders | $ | (680,793 | ) | $ | 1,098,013 | $ | (9,879,991 | ) | $ | 1,859,534 | ||||||
Other comprehensive income/(loss) | ||||||||||||||||
Net income/(loss) | $ | (731,702 | ) | $ | 1,127,621 | $ | (10,063,448 | ) | $ | 1,838,721 | ||||||
Foreign currency translation loss | (200,880 | ) | (193,554 | ) | (341,011 | ) | (234,045 | ) | ||||||||
Defined benefit plan actuarial gain | - | - | - | 87,895 | ||||||||||||
Comprehensive income/(loss) | (932,582 | ) | 934,067 | (10,404,459 | ) | 1,692,571 | ||||||||||
Less comprehensive loss attributable to noncontrolling interest | 50,909 | (35,731 | ) | 183,457 | 14,524 | |||||||||||
Comprehensive income/(loss) attributable to Cemtrex, Inc. shareholders | $ | (983,491 | ) | $ | 969,798 | $ | (10,587,916 | ) | $ | 1,678,047 | ||||||
Income/(loss) Per Share-Basic | $ | (0.03 | ) | $ | 0.06 | $ | (0.41 | ) | $ | 0.10 | ||||||
Income/(loss) Per Share-Diluted | $ | (0.03 | ) | $ | 0.06 | $ | (0.41 | ) | $ | 0.10 | ||||||
Weighted Average Number of Shares-Basic | 25,777,704 | 18,711,463 | 24,316,527 | 18,368,274 | ||||||||||||
Weighted Average Number of Shares-Diluted | 25,777,704 | 18,711,463 | 24,316,527 | 18,368,274 |
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
For the three months ended | For the six months ended | |||||||||||||||
March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | |||||||||||||
Other comprehensive income (loss) | ||||||||||||||||
Net loss | $ | (539,529 | ) | $ | (4,801,923 | ) | $ | (6,875,903 | ) | $ | (9,331,746 | ) | ||||
Foreign currency translation loss | (317,218 | ) | (199,623 | ) | (93,649 | ) | (140,131 | ) | ||||||||
Comprehensive loss | (856,747 | ) | (5,001,546 | ) | (6,969,552 | ) | (9,471,877 | ) | ||||||||
Less comprehensive (loss) income attributable to noncontrolling interest | (55,265 | ) | 80,676 | 3,898 | 132,548 | |||||||||||
Comprehensive loss attributable to Cemtrex, Inc. shareholders | $ | (801,482 | ) | $ | (5,082,222 | ) | $ | (6,973,450 | ) | $ | (9,604,425 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||
Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Retained | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
Par Value $0.001 | Par Value $0.001 | Value $0.01 | Additional | Earnings | Treasury | other | Cemtrex | Non- | ||||||||||||||||||||||||||||||||||||||||
Number of | Number of | Number of | Paid-in | (Accumulated | Stock, | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 1,885,151 | $ | 1,885 | - | 50,000 | $ | 50 | 20,782,194 | $ | 20,782 | $ | 61,727,834 | $ | (41,908,062 | ) | $ | (148,291 | ) | $ | 2,896,452 | $ | 22,590,650 | $ | 964,026 | ||||||||||||||||||||||||
Foreign currency translation gain/(loss) | 59,492 | 59,492 | ||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 45,371 | 45,371 | ||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to pay notes payable | 2,891,016 | 2,891 | 3,285,180 | 3,288,071 | ||||||||||||||||||||||||||||||||||||||||||||
Dividends paid in Series 1 preferred shares | 94,602 | 95 | (95 | ) | - | |||||||||||||||||||||||||||||||||||||||||||
Income/(loss) attributable to noncontrolling interest | - | (51,872 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | (4,477,951 | ) | - | (4,477,951 | ) | |||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 1,979,753 | $ | 1,980 | - | 50,000 | $ | 50 | 23,673,210 | $ | 23,673 | $ | 65,058,290 | $ | (46,386,013 | ) | $ | (148,291 | ) | $ | 2,955,944 | $ | 21,505,633 | $ | 912,154 | ||||||||||||||||||||||||
Foreign currency translation gain/(loss) | $ | (199,623 | ) | (199,623 | ) | |||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | $ | 27,046 | 27,046 | |||||||||||||||||||||||||||||||||||||||||||||
Shares issued with note payable | 1,000,000 | $ | 1,000 | $ | 694,400 | 695,400 | ||||||||||||||||||||||||||||||||||||||||||
Income/(loss) attributable to noncontrolling interest | - | $ | (80,676 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | $ | (4,721,247 | ) | - | (4,721,247 | ) | ||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 1,979,753 | 1,980 | - | 50,000 | 50 | 24,673,210 | 24,673 | 65,779,736 | (51,107,260 | ) | (148,291 | ) | 2,756,321 | 17,307,209 | 831,478 | |||||||||||||||||||||||||||||||||
Foreign currency translation gain/(loss) | (200,880 | ) | (200,880 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 38,985 | 38,985 | ||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to pay notes payable | 1,590,086 | 1,590 | 703,463 | 705,053 | ||||||||||||||||||||||||||||||||||||||||||||
Dividends paid in Series 1 preferred shares | 99,369 | 99 | (99 | ) | - | |||||||||||||||||||||||||||||||||||||||||||
Income/(loss) attributable to noncontrolling interest | - | (50,909 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | (680,793 | ) | - | (680,793 | ) | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 2,079,122 | 2,079 | - | 50,000 | 50 | 26,263,296 | 26,263 | 66,522,085 | (51,788,053 | ) | (148,291 | ) | 2,555,441 | 17,169,574 | 780,569 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Continued)
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock Series 1 | Preferred Stock Series A | Preferred Stock Series C | Common Stock Par | Retained | Accumulated | Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Treasury Stock, 64,100 shares of | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Par Value $0.001 | Par Value $0.001 | Par Value $0.001 | Value $0.01 | Additional | Earnings | Treasury | other | Cemtrex | Non- | Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | Series 1 | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | Number of | Number of | Number of | Paid-in | (Accumulated | Stock, | Comprehensive | Stockholders’ | controlling | Number of | Number of | Number of | Paid-in | Accumulated | Preferred | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020, as restated | 2,156,784 | $ | 2,157 | 1,000,000 | $ | 1,000 | 100,000 | $ | 100 | 17,622,539 | $ | 17,623 | $ | 60,221,766 | $ | (34,100,067 | ) | $ | (148,291 | ) | $ | 1,812,457 | $ | 27,806,745 | $ | 1,042,300 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 2,079,122 | $ | 2,079 | 50,000 | $ | 50 | 754,711 | $ | 755 | $ | 66,641,698 | $ | (54,929,020 | ) | $ | (148,291 | ) | $ | 2,377,525 | $ | 13,944,796 | $ | 692,742 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation gain/(loss) | 37,864 | 37,864 | - | - | - | 223,569 | 223,569 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 16,071 | 16,071 | 39,842 | 39,842 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to pay notes payable | 345,638 | 345 | 407,507 | 407,852 | 39,016 | 39 | 232,106 | 232,145 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid in Series 1 preferred shares | 108,169 | 108 | (108 | ) | - | 104,341 | 104 | (104 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income/(loss) attributable to noncontrolling interest | - | (40,247 | ) | - | (59,163 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | (1,692,611 | ) | - | (1,692,611 | ) | - | (6,277,211 | ) | - | (6,277,211 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 2,264,953 | 2,265 | 1,000,000 | 1,000 | 100,000 | 100 | 17,968,177 | 17,968 | 60,645,236 | (35,792,678 | ) | (148,291 | ) | 1,850,321 | 26,575,921 | 1,002,053 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 2,183,463 | $ | 2,183 | 50,000 | $ | 50 | 793,727 | $ | 794 | $ | 66,913,542 | $ | (61,206,231 | ) | $ | (148,291 | ) | $ | 2,601,094 | $ | 8,163,141 | $ | 633,579 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation gain/(loss) | (97,423 | ) | (97,423 | ) | - | - | - | (317,218 | ) | (317,218 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit plan actuarial gain/(loss) | 87,895 | 87,895 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 49,246 | 49,246 | 26,735 | 26,735 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to pay notes payable | 743,286 | 743 | 1,298,733 | 1,299,476 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income in noncontrolling interest | (10,174 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares and options surrendered in settelment agreement | (469,949 | ) | (470 | ) | (1,000,000 | ) | (1,000 | ) | (50,000 | ) | (50 | ) | (3,672,645 | ) | (3,674,165 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | 2,454,132 | - | 2,454,132 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 1,795,004 | 1,795 | - | - | 50,000 | 50 | 18,711,463 | 18,711 | 58,320,570 | (33,338,546 | ) | (148,291 | ) | 1,840,793 | 26,695,082 | 991,879 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation gain/(loss) | (199,677 | ) | (199,677 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid in Series 1 preferred shares | 90,147 | 90 | (90 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 45,587 | 45,587 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares granted to pay notes payable | 480,509 | 480,509 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income in noncontrolling interest | - | 35,731 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 1,098,013 | - | 1,098,013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income/ (loss) | 1,098,013 | 1,098,013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 1,885,151 | 1,885 | - | - | 50,000 | 50 | 18,711,463 | 18,711 | 58,846,576 | (32,240,533 | ) | (148,291 | ) | 1,641,116 | 28,119,514 | 1,027,610 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional rounding shares issued for reverse stock split | 19,314 | 19 | (19 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income/(loss) attributable to noncontrolling interest | - | 55,265 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to pay for services | 15,529 | 15 | 102,485 | 102,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | (594,794 | ) | - | - | (594,794 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 2,183,463 | $ | 2,183 | 50,000 | $ | 50 | 828,570 | $ | 828 | $ | 67,042,743 | $ | (61,801,025 | ) | $ | (148,291 | ) | $ | 2,283,876 | $ | 7,380,364 | $ | 688,844 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance value | 2,183,463 | $ | 2,183 | 50,000 | $ | 50 | 828,570 | $ | 828 | $ | 67,042,743 | $ | (61,801,025 | ) | $ | (148,291 | ) | $ | 2,283,876 | $ | 7,380,364 | $ | 688,844 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Continued)
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||
Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Treasury Stock, 64,100 shares of | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | Series 1 | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||
Number of | Number of | Number of | Paid-in | Accumulated | Preferred | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 1,885,151 | $ | 1,885 | 50,000 | $ | 50 | 593,777 | $ | 594 | $ | 61,748,022 | $ | (41,908,062 | ) | $ | (148,291 | ) | $ | 2,896,452 | $ | 22,590,650 | $ | 964,026 | |||||||||||||||||||||||||
Foreign currency translation gain/(loss) | 59,492 | 59,492 | ||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 45,371 | 45,371 | ||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to pay notes payable | 82,600 | 83 | 3,287,988 | 3,288,071 | ||||||||||||||||||||||||||||||||||||||||||||
Dividends paid in Series 1 preferred shares | 94,602 | 95 | (95 | ) | - | |||||||||||||||||||||||||||||||||||||||||||
Income/(loss) attributable to noncontrolling interest | - | (51,872 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | (4,477,951 | ) | - | (4,477,951 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 1,979,753 | $ | 1,980 | 50,000 | $ | 50 | 676,377 | $ | 677 | $ | 65,081,286 | $ | (46,386,013 | ) | $ | (148,291 | ) | $ | 2,955,944 | $ | 21,505,633 | $ | 912,154 | |||||||||||||||||||||||||
Foreign currency translation gain/(loss) | (199,623 | ) | (199,623 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 27,046 | 27,046 | ||||||||||||||||||||||||||||||||||||||||||||||
Shares issued with note payable | 28,571 | 29 | 695,371 | 695,400 | ||||||||||||||||||||||||||||||||||||||||||||
Income/(loss) attributable to noncontrolling interest | - | (80,676 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | (4,721,247 | ) | - | (4,721,247 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 1,979,753 | 1,980 | 50,000 | $ | 50 | 704,948 | 706 | 65,803,703 | (51,107,260 | ) | (148,291 | ) | 2,756,321 | 17,307,209 | 831,478 | |||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 1,979,753 | 1,980 | 50,000 | $ | 50 | 704,948 | 706 | 65,803,703 | (51,107,260 | ) | (148,291 | ) | 2,756,321 | 17,307,209 | 831,478 |
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
(Unaudited)
For the nine months ended | For the six months ended | |||||||||||||||
June 30, | March 31, | |||||||||||||||
Cash Flows from Operating Activities | 2022 | 2021 | 2023 | 2022 | ||||||||||||
Net income/(loss) | $ | (10,063,448 | ) | $ | 1,838,721 | |||||||||||
Net loss | $ | (6,875,903 | ) | $ | (9,331,746 | ) | ||||||||||
Adjustments to reconcile net income/(loss) to net cash used by operating activities | ||||||||||||||||
Adjustments to reconcile net loss to net cash used by operating activities | ||||||||||||||||
Depreciation and amortization | 1,346,383 | 972,186 | 448,388 | 610,327 | ||||||||||||
Loss on disposal of property and equipment | 161,814 | 18,583 | 64,908 | 30,558 | ||||||||||||
Noncash lease expense | 615,354 | 653,175 | 420,411 | 293,506 | ||||||||||||
Change in allowance for doubtful accounts | (7,584 | ) | (161,101 | ) | ||||||||||||
Bad debt expense | (1,543 | ) | (1,839 | ) | ||||||||||||
Share-based compensation | 111,402 | 110,904 | 66,577 | 72,417 | ||||||||||||
Income tax expense/ (benefit) | (247,941 | ) | 168,190 | |||||||||||||
Interest expense paid in equity shares | 1,627,046 | 818,348 | 32,145 | 1,521,992 | ||||||||||||
Accounts payable paid in equity shares | 102,500 | - | ||||||||||||||
Accrued interest on notes payable | 635,001 | 64,748 | 1,290,615 | 329,264 | ||||||||||||
Amortization of original issue discounts on notes payable | 908,333 | 575,000 | 883,467 | 583,333 | ||||||||||||
Gain on marketable securities | (2,234,478 | ) | (2,407,841 | ) | ||||||||||||
Gain/(loss) on marketable securities | 58 | (159,905 | ) | |||||||||||||
Discharge of Paycheck Protection Program Loans | (971,500 | ) | (3,349,700 | ) | - | (971,500 | ) | |||||||||
Settlement Agreement - Related Party | - | (3,674,165 | ) | |||||||||||||
Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||||||||||
Accounts receivable | 254,098 | 1,613,682 | ||||||||||||||
Accounts receivable - related party | 14,641 | (78,594 | ) | |||||||||||||
Trade receivables | (1,870,729 | ) | 1,572,113 | |||||||||||||
Trade receivables - related party | (408,464 | ) | 14,641 | |||||||||||||
Inventory | (2,801,243 | ) | (1,875,591 | ) | (73,209 | ) | (1,396,073 | ) | ||||||||
Prepaid expenses and other current assets | 178,536 | (976,050 | ) | (166,756 | ) | (708,456 | ) | |||||||||
Other assets | (159,526 | ) | 149,778 | (185,165 | ) | (78,146 | ) | |||||||||
Other liabilities | (13,542 | ) | 15,019 | (231,998 | ) | (17,163 | ) | |||||||||
Accounts payable | 1,166,536 | 30,327 | 256,584 | 432,372 | ||||||||||||
Accounts payable - related party | (15,765 | ) | - | |||||||||||||
Operating lease liabilities | (546,896 | ) | (650,535 | ) | (356,176 | ) | (201,578 | ) | ||||||||
Deposits from customers | (423,114 | ) | 9,567 | 1,618 | (288,503 | ) | ||||||||||
Accrued expenses | (444,266 | ) | (78,851 | ) | 791,618 | (312,693 | ) | |||||||||
Deferred revenue | 706,383 | 124,637 | 481,457 | 722,975 | ||||||||||||
Income taxes payable | (58,788 | ) | (88,987 | ) | (37,698 | ) | (312,006 | ) | ||||||||
Net cash used by operating activities - continuing operations | (5,383,060 | ) | (7,596,110 | ) | ||||||||||||
Net cash provided by operating activities - discontinued operations | 2,488,144 | 133,512 | ||||||||||||||
Net cash used by operating activities | (10,246,799 | ) | (6,178,550 | ) | (2,894,916 | ) | (7,462,598 | ) | ||||||||
Cash Flows from Investing Activities | ||||||||||||||||
Purchase of property and equipment | (1,003,121 | ) | (1,113,658 | ) | (263,732 | ) | (706,392 | ) | ||||||||
Proceeds from sale of property and equipment | 51,262 | - | 11,026 | 230,901 | ||||||||||||
Investment in MasterpieceVR | (500,000 | ) | (500,000 | ) | - | (500,000 | ) | |||||||||
Investment in related party | - | (1,075,428 | ) | |||||||||||||
Proceeds from sale of marketable securities | 12,182,932 | 9,134,159 | - | 176,945 | ||||||||||||
Purchase of marketable securities | (10,214,044 | ) | (6,290,747 | ) | - | (4,626,862 | ) | |||||||||
Net cash used by investing activities - continuing operations | (252,706 | ) | (5,425,408 | ) | ||||||||||||
Net cash provided by investing activities - discontinued operations | - | (2,349 | ) | |||||||||||||
Net cash used by investing activities | 517,029 | 154,326 | (252,706 | ) | (5,427,757 | ) | ||||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Proceeds from notes payable | 8,000,000 | - | - | 8,000,000 | ||||||||||||
Payments on notes payable | (1,176,763 | ) | (2,145,257 | ) | (544,370 | ) | (901,763 | ) | ||||||||
Payments on capital lease liabilities | - | (20,061 | ) | |||||||||||||
Payments on Paycheck Protection Program Loans | (10,033 | ) | - | |||||||||||||
Payments on bank loans | (920,939 | ) | (957,186 | ) | (365,724 | ) | (613,900 | ) | ||||||||
Proceeds from Paycheck Protection Program Loans | - | 2,942,285 | ||||||||||||||
Net cash provided/(used) by financing activities | 5,902,298 | (180,219 | ) | |||||||||||||
Net cash (used)/provided by financing activities | (920,127 | ) | 6,484,337 | |||||||||||||
Effect of currency translation | (397,644 | ) | (386,160 | ) | (126,593 | ) | (150,076 | ) | ||||||||
Defined benefit plan actuarial gain/(loss) | - | 87,895 | ||||||||||||||
Net decrease in cash, cash equivalents, and restricted cash | (3,827,472 | ) | (6,204,443 | ) | (4,067,749 | ) | (6,406,018 | ) | ||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 17,186,323 | 21,072,859 | 11,473,676 | 17,186,323 | ||||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 12,961,207 | $ | 14,570,151 | $ | 7,279,334 | $ | 10,630,229 | ||||||||
Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||||||||||
Cash and equivalents | $ | 11,442,487 | $ | 12,879,278 | $ | 6,634,037 | $ | 8,970,324 | ||||||||
Restricted cash | 1,518,720 | 1,690,873 | 645,297 | 1,659,905 | ||||||||||||
Total cash, cash equivalents, and restricted cash | $ | 12,961,207 | $ | 14,570,151 | $ | 7,279,334 | $ | 10,630,229 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Supplemental Disclosure of Cash Flow Information: | ||||||||||||||||
Cash paid during the period for interest | $ | 483,665 | $ | 432,930 | $ | 257,145 | $ | 288,397 | ||||||||
Cash paid during the period for income taxes | $ | 306,729 | $ | 88,765 | ||||||||||||
Cash paid during the period for income taxes, net of refunds | $ | 37,698 | $ | 312,806 | ||||||||||||
Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||||||||||
Investment in Virtual Driver Interactive | $ | - | $ | 439,774 | ||||||||||||
Stock issued to pay notes payable | $ | 3,993,124 | $ | 2,187,837 | ||||||||||||
Shares issued to pay notes payable | $ | 232,145 | $ | 3,288,071 | ||||||||||||
Shares issued in connection with note payable | $ | 700,400 | $ | - | $ | - | $ | 700,400 | ||||||||
Financing of right of use assets | $ | 317,187 | $ | - | ||||||||||||
Investment in right of use asset | $ | 76,506 | $ | 317,187 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual and augmented realities, 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.
During the first quarter of fiscal year 2023, The Company has two businessreorganized its reporting segments to be in line with its current structure consisting of (i) Advanced Technologies (AT) andSecurity (ii) Industrial Services (IS).and (iii) Cemtrex Corporate.
Advanced Technologies (AT)Security
Cemtrex’s Advanced TechnologiesSecurity segment operates several brands that deliver cutting-edge softwareunder 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 hardware technologies: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 (IS)
Cemtrex’s ISIndustrial Services segment operates through aunder the brand, Advanced Industrial Services (“AIS”), thatwhich offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We installAIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. We areAIS is 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.
Cemtrex Corporate
Acquisition of Virtual Driver Interactive
On October 26, 2020, the company acquired Virtual Driver Interactive (“VDI”), a California based provider of innovative driver training simulation solutions for a purchase price of $1,339,774 plus contingent consideration of $175,428.
For over 10 years, VDI has been known for its effective and engaging driver training systems, designed for usersCemtrex’s Corporate segment is the holding company of all ages and skill levels. The Company offers comprehensive training for new teen and novice drivers, along with advanced training for corporate fleets and truck drivers. VDI’s wide range of training courses and system options provide customers with highly portable, affordable and effective solutions, all while focusing on the dangers of distracted driving. Results for VDI will be reported under the AT segment.
The Company paid $900,000 in cash and issued a note payable in the amount of $439,774. This note carries interest of 5% and is payable inour other two installments of $239,774 plus accumulated interest on October 26, 2021, and $200,000 plus accumulated interest on October 26, 2022. Additionally, the Company paid contingent consideration of $175,428 in May 2021. There is no further contingent consideration specified in the purchase agreement. The Company has accounted for this acquisition as a business combination and has allocated the purchase price as follows, $876,820 to proprietary software, $39,992 to inventory, and $598,391 to goodwill.segments.
Strategic InvestmentSale of former Cemtrex Brands
On November 13, 2020, Cemtrex made a $500,000 investment22, 2022, the Company entered into two Asset Purchase Agreements and on January 19, 2022, made an additional $500,000 investment via a simple agreementone Simple Agreement for future equityFuture Equity (“SAFE”) in MasterpieceVR. The SAFE provides thatwith 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.
On November 22, 2022, the Company will automatically receive shares ofcompleted 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 included in other assets in the accompanying balance sheet and the Company accounts for this investment and recorded at cost. No impairment has been recordedabove disposition for the period ended June 30, 2022.following consideration.
● | Cemtrex XR, Inc. |
○ | $895,000 comprised of: |
■ | $75,000 in cash payable at Closing; 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, Purchaser shall be obligated to pay the difference between $820,000 and the royalties paid. |
10 |
● | Cemtrex Advanced Technologies, Inc. |
○ | $10,000 in cash payable at Closing; and | |
○ | 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 $5M with a $10M cap. |
The Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions and agreements.
Potential ImpactsCommon Stock Reverse Stock Split
On January 25, 2023, the company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively adjusted for this reverse split.
Extension of COVID-19cure period and Subsequent Compliance
Series 1 Preferred Stock
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 our BusinessNasdaq was below $ 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 $ 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.
The Company intends to continue actively monitoring the bid price for its Series 1 preferred stock between now and July 24, 2023 and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement.
Common Stock
On January 24, 2022, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $ 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 $ per share (the “Minimum Bid Price Requirement”).
On July 26, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC Nasdaq notifying the Company that, it had been granted an additional 180 days or until January 23, 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 January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has not regained compliance with Listing Rule 5550(a)(2) and accordingly would be delisted from the Capital Market. The Company then requested and had been granted a hearing to occur on March 16, 2023, appealing this determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.
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On February 8, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has regained compliance with Listing Rule 5550(a)(2) and is in compliance with all applicable listing standards. The Company’s common stock will continue to be listed and traded on The Nasdaq Stock Market.
Going Concern Considerations
The COVID-19 pandemic impacted our business operationsaccompanying condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and the results of our operations during fiscal years 2020 and 2021, primarilyin accordance with delays in orders by many customers and new product development, including newer versions of surveillance software since our technical facility in Pune, India had been under lock down on multiple occasions. Overall bookings levelgenerally accepted accounting principles in the IS segmentUnited States of our business were down by more than 20%, comparedAmerica. 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 fiscal 2019 levels, however our AT segment had experienced relatively less slow down. Bookingsrealize its assets and revenuedischarge its liabilities and commitments in the normal course of business. Pursuant to the requirements of the ASC 205, management must evaluate whether there are recoveringconditions or events, considered in this fiscal year compared to last year. However, due to ongoing delays in certain supply chain areas, the expected launch times of our new products and new versions has resulted in delays of several months. These supply chain issues have also affectedaggregate, which raise substantial doubt about the Company’s ability to obtain inventorycontinue as a going concern for our current bookings, andone 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 hasas 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 buildup of inventory levels to remain competitive and keep backlog orders at a minimum. Additionally, increased costs andgoing concern within one year after the need to increase wages to retain talent may cause our gross margin percentages to shrink and our operational costs to rise. In response to these increased costs,date that the Company has implemented an ongoing review of our pricing to cover these additional costs while remaining competitive.financial statements are issued.
The broader implications of COVID-19 on our results from operations going forward remains uncertain. The COVID-19 pandemic and the resulting supply chain issues and inflation has the potential to cause adverse effects to our customers, suppliers or business partners in locations that have or will experience more pronounced disruptions, which could result in a reduction to future revenue and manufacturing output as well as delays in our new product development activities. However, opportunities in the video surveillance field have been growing for Vicon products.
The extent of the pandemics effect on our operational and financial performance will depend in large part on future developments, which cannot be reasonably estimated at this time. Future developments include the emergence of new virus variants that are more contagious or harmful than prior variants, the actions taken to contain or mitigate its impact both within and outside the jurisdictions where we operate, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.
Going Concern
For the nine months ended June 30, 2022, the Company has incurred netsubstantial losses of $10,063,44813,020,958 withand $7,807,995 for fiscal years 2022 and 2021, respectively, and has losses on continuing operations for the first half of fiscal year 2023 of $6,872,005 and has debt obligations over the next year of $16,441,488 and working capital of $5,757,185108,939 as of June 30, 2022. The decrease in working capital over the past nine months is mainly due, that raise substantial doubt with respect to the increase in the short-term portion of the Company’s liabilities, $17,146,234ability to continue as a going concern. at June 30, 2022.
While our working capital 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. BasedAdditionally, the Company has sold unprofitable brands, reducing the cash required to maintain those brands, reevaluated our pricing model on this,our Vicon brand to improve margins on those products, and 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 that our cash on hand and cash generated by operations isthese plans are sufficient to meet the capital demands of our current operations for at least the next twelve months. 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.
months, the 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 expansion goals and working capital needs. The Company currently does not have adequate cash to meet our short or long-term needs. 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, 2021,2022, of Cemtrex, Inc.
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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.
The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Cemtrex Advanced Technologies Inc., Cemtrex Technologies Pvt. Ltd., Cemtrex XR Inc., and Advanced Industrial Services, Inc., and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiary, Vicon Industries Ltd. All inter-company balances and transactions have been eliminated in consolidation.
Accounting Pronouncements
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, 2021,2022, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
Recently Issued Accounting Standards
ASUIn June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentInstruments (“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. The Company is currently evaluating the impact of this ASU on our financial statements.
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022. This is not expected to apply to the Company as financial instruments giving rise to credit risk are not utilized by the Company.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early2022, with early adoption is permitted. The Company is currently evaluating the impact of this new guidance will haveASU on itsour financial statements.
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.
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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 six-month ended March 31, 2023, has recognized $678,330 of royalties due and will amortize the remaining amount over the period the royalties are due.
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 | ) |
Assets and liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets at March 31, 2023 and September 30, 2022 are as follows;
SCHEDULE OF ASSETS AND LIABILITIES INCLUDED WITHIN DISCONTINUED OPERATIONS
March 31, | September 30, | |||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and equivalents | $ | - | $ | 714,420 | ||||
Trade receivables, net | - | 561,470 | ||||||
Inventory –net of allowance for inventory obsolescence | - | 1,043,865 | ||||||
Prepaid expenses and other assets | - | 153,461 | ||||||
Total current assets | - | 2,473,216 | ||||||
Property and equipment, net | - | 825,850 | ||||||
Other | - | 672,627 | ||||||
Total Assets | $ | - | $ | 3,971,693 | ||||
Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | - | $ | 205,622 | ||||
Short-term liabilities | - | 464,429 | ||||||
Deposits from customers | - | 125,032 | ||||||
Accrued expenses | - | 10,136 | ||||||
Total current liabilities | - | 805,219 | ||||||
Long-term liabilities | ||||||||
Deferred revenue | 6,273 | |||||||
Total long-term liabilities | - | 6,273 | ||||||
Total liabilities | $ | - | $ | 811,492 |
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.
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Gain/(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 and six month periods ended March 31, 2023 and 2022, are as follows:
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three months ended March 31, | Six months ended March 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Total net sales | $ | - | $ | 982,198 | $ | 649,061 | $ | 2,241,292 | ||||||||
Cost of sales | - | 699,368 | 228,086 | 1,311,518 | ||||||||||||
Operating, selling, general and administrative expenses | 492 | 1,207,945 | 1,296,064 | 2,610,813 | ||||||||||||
Other (income)/expenses | - | (239,975 | ) | 3,195 | (236,941 | ) | ||||||||||
Income (loss) from discontinued operations | (492 | ) | (685,140 | ) | (878,284 | ) | (1,444,098 | ) | ||||||||
Amortization of discounted royalties | 14,724 | - | 19,151 | - | ||||||||||||
Loss on sale of discontinued operations | - | - | (2,455,341 | ) | - | |||||||||||
Adjustment of benefit obligation | - | - | 89,085 | - | ||||||||||||
Income tax provision | - | - | - | - | ||||||||||||
Discontinued operations, net of tax | $ | 14,232 | $ | (685,140 | ) | $ | (3,225,389 | ) | $ | (1,444,098 | ) |
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 and minesix months ended June 30,March 31, 2023, and 2022, and 2021, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:
2023 | 2022 | 2023 | 2022 | |||||||||||||
For the three months ended | For the six months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Options | 28,796 | 22,858 | 28,796 | 22,858 |
1 | 2 | 3 | 4 | |||||||||||||
For the three months ended | For the nine months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Warrants to purchase shares | - | 433,965 | - | 433,965 | ||||||||||||
Options | 1,210,260 | 1,383,965 | 1,210,260 | 1,383,965 | ||||||||||||
Net loss per common share anti-dilutive effect | 1,210,260 | 1,383,965 | 1,210,260 | 1,383,965 |
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NOTE 45 – SEGMENT INFORMATION
During the first quarter of fiscal year 2023, the Company reorganized its reporting segments to be in line with its current structure. The Company reports and evaluates financial information for 2three current segments: Advanced Technologies (AT)the Security segment, Industrial Services segment and the Industrial Services (IS)Corporate segment. The AT segment develops smart devices and provides 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. The IS segment offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers in USA in industries such as: manufacturing, steel, printing, construction, & petrochemical.
The following tables summarize the Company’s segment information:
SCHEDULE OF SEGMENT INFORMATION
2022 | 2021 | 2022 | 2021 | |||||||||||||
For the three months ended | For the nine months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues from external customers | ||||||||||||||||
Advanced Technologies | $ | 8,162,855 | $ | 5,845,958 | $ | 21,503,679 | $ | 16,006,241 | ||||||||
Industrial Services | $ | 5,467,991 | 4,480,473 | 15,527,871 | 12,416,651 | |||||||||||
Total revenues | $ | 13,630,846 | $ | 10,326,431 | $ | 37,031,550 | $ | 28,422,892 | ||||||||
Gross profit | ||||||||||||||||
Advanced Technologies | $ | 4,219,490 | $ | 2,693,677 | $ | 9,245,092 | $ | 7,686,875 | ||||||||
Industrial Services | 1,656,866 | 1,434,039 | 4,553,069 | 4,375,195 | ||||||||||||
Total gross profit | $ | 5,876,356 | $ | 4,127,716 | $ | 13,798,161 | $ | 12,062,070 | ||||||||
Operating income/(loss) | ||||||||||||||||
Advanced Technologies | $ | (3,426,264 | ) | $ | (1,650,221 | ) | $ | (13,252,823 | ) | $ | (5,185,944 | ) | ||||
Industrial Services | 1,305,415 | (650,048 | ) | 3,258,114 | (1,122,874 | ) | ||||||||||
Total operating loss | $ | (2,120,849 | ) | $ | (2,300,269 | ) | $ | (9,994,709 | ) | $ | (6,308,818 | ) | ||||
Other income/(expense) | ||||||||||||||||
Advanced Technologies | $ | 1,252,826 | $ | 4,955,782 | $ | (135,094 | ) | $ | 5,666,112 | |||||||
Industrial Services | $ | (111,620 | ) | (1,487,133 | ) | (181,586 | ) | 2,649,617 | ||||||||
Total other expense | $ | 1,141,206 | $ | 3,468,649 | $ | (316,680 | ) | $ | 8,315,729 | |||||||
Depreciation and Amortization | ||||||||||||||||
Advanced Technologies | $ | 309,634 | $ | 103,177 | $ | 816,604 | $ | 308,755 | ||||||||
Industrial Services | 174,066 | 189,005 | 529,779 | 663,431 | ||||||||||||
Total depreciation and amortization | $ | 483,700 | $ | 292,182 | $ | 1,346,383 | $ | 972,186 |
Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
Three months ended March 31, 2023 | Six months ended March 31, 2023 | |||||||||||||||||||||||||||||||
Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
Revenues | $ | 9,913,898 | $ | 6,159,499 | $ | - | $ | 16,073,397 | $ | 16,918,642 | $ | 11,124,997 | $ | - | $ | 28,043,639 | ||||||||||||||||
Cost of revenues | 4,791,608 | 3,943,308 | - | 8,734,916 | 8,392,662 | 7,269,881 | - | 15,662,543 | ||||||||||||||||||||||||
Gross profit | $ | 5,122,290 | $ | 2,216,191 | $ | - | $ | 7,338,481 | $ | 8,525,980 | $ | 3,855,116 | $ | - | $ | 12,381,096 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Sales, general, and administrative | 2,965,659 | 1,336,313 | 807,242 | 5,109,214 | 5,715,088 | 2,525,178 | 1,793,951 | 10,034,217 | ||||||||||||||||||||||||
Depreciation and amortization | 31,543 | 157,385 | 20,125 | 209,053 | 71,203 | 324,906 | 52,279 | 448,388 | ||||||||||||||||||||||||
Research and development | 1,615,341 | - | - | 1,615,341 | 3,445,054 | - | - | 3,445,054 | ||||||||||||||||||||||||
Operating income/(loss) | $ | 509,747 | $ | 722,493 | $ | (827,367 | ) | $ | 404,873 | $ | (705,365 | ) | $ | 1,005,032 | $ | (1,846,230 | ) | $ | (1,546,563 | ) | ||||||||||||
Other income/(expense) | $ | 337,191 | $ | (29,866 | ) | $ | (1,265,959 | ) | $ | (958,634 | ) | $ | 224,792 | $ | (61,426 | ) | $ | (2,267,317 | ) | $ | (2,103,951 | ) |
June 30, | September 30, | |||||||
2022 | 2021 | |||||||
Identifiable Assets | ||||||||
Advanced Technologies | $ | 34,098,148 | $ | 33,850,496 | ||||
Industrial Services | 17,105,420 | 19,089,392 | ||||||
Total Assets | $ | 51,203,568 | $ | 52,939,888 |
Three months ended March 31, 2022 | Six months ended March 31, 2022 | |||||||||||||||||||||||||||||||
Security | Industrial Services | Corporate | Consolidated | Security | Industrial Services | Corporate | Consolidated | |||||||||||||||||||||||||
Revenues | $ | 6,740,109 | $ | 5,005,908 | $ | - | $ | 11,746,017 | $ | 11,099,532 | 10,059,880 | $ | - | $ | 21,159,412 | |||||||||||||||||
Cost of revenues | 4,436,346 | 3,539,890 | - | 7,976,236 | 7,003,704 | 7,163,677 | - | 14,167,381 | ||||||||||||||||||||||||
Gross profit | $ | 2,303,763 | $ | 1,466,018 | $ | - | $ | 3,769,781 | $ | 4,095,828 | $ | 2,896,203 | $ | - | $ | 6,992,031 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Sales, general, and administrative | 2,438,851 | 1,213,788 | 1,123,329 | 4,775,968 | 5,298,815 | 2,624,649 | 2,052,752 | 9,976,216 | ||||||||||||||||||||||||
Depreciation and amortization | 366,929 | 176,490 | 36,702 | 580,121 | 398,707 | 355,713 | 73,404 | 827,824 | ||||||||||||||||||||||||
Research and development | 1,306,862 | - | 1,052 | 1,307,914 | 2,379,760 | - | 1,052 | 2,380,812 | ||||||||||||||||||||||||
Operating (loss)/income | $ | (1,808,879 | ) | $ | 75,740 | $ | (1,161,083 | ) | $ | (2,894,222 | ) | $ | (3,981,454 | ) | $ | (84,159 | ) | $ | (2,127,208 | ) | $ | (6,192,821 | ) | |||||||||
Other income/(expense) | $ | (37,015 | ) | $ | (25,741 | ) | $ | (1,159,805 | ) | $ | (1,222,561 | ) | $ | 824,685 | $ | (76,789 | ) | $ | (2,442,723 | ) | $ | (1,694,827 | ) |
2023 | 2022 | |||||||
March 31, | September 30, | |||||||
2023 | 2022 | |||||||
Identifiable Assets | ||||||||
Security | $ | 17,951,806 | $ | 15,257,235 | ||||
Industrial Services | 17,667,808 | 16,658,984 | ||||||
Corporate | 4,784,566 | 9,869,716 | ||||||
Discontinued operations | - | 3,971,693 | ||||||
Total Assets | $ | 40,404,180 | $ | 45,757,628 |
NOTE 6 – 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 $645,297 at March 31, 2023 and $1,577,915 at September 30, 2022.
NOTE 57 – 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. We measureThe 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.
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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 June 30, 2022March 31, 2023 and September 30, 2021,2022, are as follows.
SCHEDULE OF FAIR VALUE OF ASSETS
Quoted Prices | Significant | - | - | Quoted Prices | Significant | |||||||||||||||||||||||||||
in Active | Other | Significant | Balance | in Active | Other | Significant | Balance | |||||||||||||||||||||||||
Markets for | Observable | Unobservable | as of | Markets for | Observable | Unobservable | as of | |||||||||||||||||||||||||
Identical Assets | Inputs | Inputs | June 30, | Identical Assets | Inputs | Inputs | March 31, | |||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2022 | (Level 1) | (Level 2) | (Level 3) | 2023 | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Investment in marketable securities | ||||||||||||||||||||||||||||||||
(included in short-term investments) | $ | 280,571 | $ | - | $ | - | $ | 280,571 | $ | 13,663 | $ | - | $ | - | $ | 13,663 | ||||||||||||||||
Fair value assets | $ | 280,571 | $ | - | $ | - | $ | 280,571 | $ | 13,663 | $ | - | $ | - | $ | 13,663 |
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | Balance | |||||||||||||
Markets for | Observable | Unobservable | as of | |||||||||||||
Identical Assets | Inputs | Inputs | September, 30 | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2021 | |||||||||||||
Assets | ||||||||||||||||
Investment in marketable securities | ||||||||||||||||
(included in short-term investments) | $ | 14,981 | $ | - | $ | - | $ | 14,981 | ||||||||
Fair value assets | $ | 14,981 | $ | - | $ | - | $ | 14,981 |
NOTE 6 – 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 $1,518,720 at June 30, 2022 and $1,601,932 at September 30, 2021. Additionally, the Company had a standby letter of credit for deposit on a building lease and payable against a money market account. The amount of the standby letter of credit is $0 and $517,415 as of June 30, 2022 and September 30, 2021, respectively.
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | Balance | |||||||||||||
Markets for | Observable | Unobservable | as of | |||||||||||||
Identical Assets | Inputs | Inputs | September 30, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2022 | |||||||||||||
Assets | ||||||||||||||||
Investment in marketable securities | ||||||||||||||||
(included in short-term investments) | $ | 13,721 | $ | - | $ | - | $ | 13,721 | ||||||||
Fair value assets | $ | 13,721 | $ | - | $ | - | $ | 13,721 |
NOTE 78 – TRADE RECEIVABLES, NET
AccountsTrade receivables, net consist of the following:
SCHEDULE OF ACCOUNTS RECEIVABLE,TRADE RECEIVABLES, NET
June 30, | September 30, | March 31, | September 30, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Trade receivables | $ | 7,735,790 | $ | 7,989,888 | $ | 7,519,384 | $ | 5,648,655 | ||||||||
Allowance for doubtful accounts | (171,408 | ) | (178,992 | ) | (247,896 | ) | (249,439 | ) | ||||||||
Accounts receivables, net, total | $ | 7,564,382 | $ | 7,810,896 | $ | 7,271,488 | $ | 5,399,216 |
Accounts receivableTrade receivables include amounts due for shipped products and services rendered.
Allowance for doubtful accounts includeincludes estimated losses resulting from the inability of our customers to make the required payments.
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NOTE 89 – INVENTORY, NET
Inventory, net, consist of the following:
SCHEDULE OF INVENTORY, NET
June 30, | September 30, | March 31, | September 30, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Raw materials | $ | 2,520,373 | $ | 1,957,410 | $ | 1,560,503 | $ | 1,375,933 | ||||||||
Work in progress | 231,123 | 429,871 | 216,724 | 120,026 | ||||||||||||
Finished goods | 6,619,379 | 5,191,007 | 7,809,788 | 8,080,235 | ||||||||||||
Inventory, gross | 9,370,875 | 7,578,288 | 9,587,015 | 9,576,194 | ||||||||||||
Less: Allowance for inventory obsolescence | (912,345 | ) | (1,921,001 | ) | (1,025,989 | ) | (1,088,377 | ) | ||||||||
Inventory –net of allowance for inventory obsolescence | $ | 8,458,530 | $ | 5,657,287 | $ | 8,561,026 | $ | 8,487,817 |
NOTE 9 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
SUMMARY OF PROPERTY AND EQUIPMENT
June 30, | September 30, | |||||||
2022 | 2021 | |||||||
Land | $ | 790,373 | $ | 790,373 | ||||
Building and leasehold improvements | 2,932,111 | 2,892,900 | ||||||
Furniture and office equipment | 534,185 | 501,885 | ||||||
Computers and software | 1,313,816 | 1,105,681 | ||||||
Machinery and equipment | 12,392,900 | 12,984,959 | ||||||
Property and equipment, gross | 17,963,385 | 18,275,798 | ||||||
Less: Accumulated depreciation | (11,724,146 | ) | (11,536,854 | ) | ||||
Property and equipment, net | $ | 6,239,239 | $ | 6,738,944 |
Depreciation expense for the three months ended June 30, 2022, and 2021 were $483,700, and $292,182, respectively, and for the nine months ended June 30, 2022, and 2021 were $1,346,383, and $972,186, respectively.
NOTE 10 – LEASESPREPAID AND OTHER CURRENT ASSETS
ASC 842, “Leases”, requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified retrospective approach. Under the effective date method, the Company’s comparative period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted ASC 842 October 1, 2019, using the effective date method and elected certain practical expedients allowingOn March 31, 2023, the Company not to reassess:
The Company also made the accounting policy decision not to recognize leasehad prepaid and other current assets consisting of prepayments on inventory purchases of $665,525, costs and liabilities for leases with a termestimated earnings in excess of 12 months or less.billings on uncompleted contracts of $794,416
The Company entered into operating leases for its facilities in New York, United Kingdom,, and India, as well as for vehicles for use in our Industrial Services segment. The operating lease terms range from 1 to 7 years. The Company excluded the renewal option on its applicable facility leases from the calculationother current assets of its right-of-use assets and lease liabilities.$1,128,459
Finance and operating lease liabilities consist of the following:
SUMMARY OF FINANCE AND OPERATING LEASE LIABILITIES
June 30, | September 30, | |||||||
2021 | 2021 | |||||||
Lease liabilities - current | ||||||||
Finance leases | $ | - | $ | - | ||||
Operating leases | 819,488 | 830,791 | ||||||
819,488 | 830,791 | |||||||
Lease liabilities - net of current portion | ||||||||
Finance leases | $ | - | $ | - | ||||
Operating leases | 1,799,002 | 2,017,408 | ||||||
$ | 1,799,002 | $ | 2,017,408 |
A reconciliation of undiscounted cash flows to finance and operating lease liabilities recognized in the condensed consolidated balance sheet at June. On September 30, 2022, is set forth below:the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $414,997, costs and estimated earnings in excess of billings on uncompleted contracts of $781,819, accrued income taxes refunds on foreign operations of $37,761, and prepaid expenses and other current assets of $1,187,067.
SCHEDULE OF RECONCILIATION OF UNDISCOUNTED CASH FLOWS TO FINANCE AND OPERATING LEASE LIABILITIES
Years ending September 30, | Finance leases | Operating Leases | Total | |||||||||
2022 | - | 275,319 | 275,319 | |||||||||
2023 | - | 834,504 | 834,504 | |||||||||
2024 | - | 660,865 | 660,865 | |||||||||
2025 | - | 638,531 | 638,531 | |||||||||
2026 & Thereafter | - | 702,252 | 702,252 | |||||||||
Undiscounted lease payments | - | 3,111,471 | 3,111,471 | |||||||||
Amount representing interest | - | (492,981 | ) | (492,981 | ) | |||||||
Discounted lease payments | $ | - | $ | 2,618,490 | $ | 2,618,490 |
Additional disclosures of lease data are set forth below:
SCHEDULE OF LEASE COSTS
Nine months ended | ||||||||
June 30, 2022 | June 30, 2021 | |||||||
Lease costs: | ||||||||
Finance lease costs: | ||||||||
Depreciation of finance lease assets | $ | - | $ | 17,184 | ||||
Interest on lease liabilities | - | 88 | ||||||
Operating lease costs: | ||||||||
Operating lease expense | $ | 686,124 | $ | 727,374 | ||||
Other information: | ||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating leases | $ | 546,896 | $ | 650,535 | ||||
Finance leases | - | 28,535 | ||||||
$ | 546,896 | $ | 679,070 | |||||
Weighted-average remaining lease term - finance leases (months) | 0 | 3 | ||||||
Weighted-average remaining lease term - operating leases (months) | 33 | 58 | ||||||
Weighted-average discount rate - finance leases | N/A | 3.63 | % | |||||
Weighted-average discount rate - operating leases | 5.66 | % | 6.85 | % |
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.
NOTE 11 – PREPAIDPROPERTY AND OTHER CURRENT ASSETSEQUIPMENT
On June 30,Property and equipment are summarized as follows:
SUMMARY OF PROPERTY AND EQUIPMENT
March 31, | September 30, | |||||||
2023 | 2022 | |||||||
Land | $ | 790,373 | $ | 790,373 | ||||
Building and leasehold improvements | 2,914,854 | 2,906,953 | ||||||
Furniture and office equipment | 561,183 | 546,548 | ||||||
Computers and software | 208,135 | 365,892 | ||||||
Machinery and equipment | 10,747,542 | 11,242,709 | ||||||
Property and equipment, gross | 15,222,087 | 15,852,475 | ||||||
Less: Accumulated depreciation | (10,169,291 | ) | (10,572,033 | ) | ||||
Property and equipment, net | $ | 5,052,796 | $ | 5,280,442 |
Depreciation expense for the three months ended March 31, 2023, and 2022 the Company had prepaidwere $209,053 and other current assets consisting of prepayments on inventory purchases of $439,143347,494, costs and estimated earnings in excess of billings on uncompleted contracts ofrespectively. Depreciation expense for the six months ended March 31, 2023, were $504,618448,388, and other current assets of $1,463,355. On September 30, 2021, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $298,707610,327, costs and estimated earnings in excess of billings on uncompleted contracts of $1,148,243, and other current assets of $1,138,702.respectively.
NOTE 12 – OTHER ASSETS
As of JuneMarch 31, 2023, the Company had other assets of $1,584,910 which was comprised of rent security of $199,088, a strategic investment in MasterpieceVR of $1,000,000 (see below), and other assets of $385,822. As of September 30, 2022, the Company had other assets of $1,356,766 which was comprised of rent security of $90,791, a strategic investment in MasterpieceVR of $1,000,000, and other assets of $265,975. As of September 30, 2021, the Company had other assets of $697,2401,399,745 which was comprised of rent security deposits of $84,362204,388, Investment in Masterpiece VR valued at $500,0001,000,000, and other assets of $112,878195,357.
On November 13, 2020, Cemtrex made a $500,000 investment and on January 19, 2022, made an additional $500,000 investment 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 included in other assets in the accompanying balance sheet and the Company accounts for this investment and recorded at cost. No impairment has been recorded for the three and six months ended March 31, 2023.
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NOTE 13 – 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, its President, for total consideration of $550,000. As of June 30,On July 31, 2022, and September 30, 2021, there was $1,472,514 and $1,487,155 in receivables due from Ducon Technologies, Inc., respectively. At June 30, 2022, $500,000 of the balance due is for the sale of Griffin, which was due in February 2021, and the remaining balance are various receivables with various due dates within the next fiscal year. The Company has negotiated a payment agreement surrounding the sale of Griffin Filters, LLC and other liabilities due to Cemtrex, Inc. totaling 761,585.$. 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. The remaining2024.
As of March 31, 2023, and September 30, 2022, there was $representsand $ payable due to Ducon Technologies, Pvt Ltd., respectively.
Receivables of $and is still in negotiation. that represented the amount due from Ducon to Cemtrex Technologies Pvt. Ltd. the Company’s subsidiary based in India
On February 23, 2021, Cemtrex’s Board of Directors determined that certain transactions between Cemtrex Inc. and First Commercial, a company owned by former Executive Director, former Controlling Shareholder and former CFO, Aron Govil, were incorrectly handled and accounted for.
The total amount of disputed transfers was approximately $7,100,000 and occurredwritten off to bad debt in fiscal year 2017 in the amount of $5,600,000 and in fiscal year 2018 in the amount of $1,500,000. Cemtrex did not find any other such transfers during this period or thereafter, upon further review of the Company’s records.
Upon the Company’s investigation into this matter, the Company has determined that there were inaccuracies in the Company’s financial statements. The financials for the periods 2017 and 2018 were incorrect corresponding to the amounts that were incorrectly accounted for, and subsequent years were affected by the roll forward effects of these entries. The Company found unsupported advertising expenses in the amount of approximately $400,000 on Cemtrex Inc’s income statement for fiscal year 2018 and found that approximately $5,700,000 of intangible assets and $975,000 of research and development expenses, as translated from Indian Rupee at the time, were recorded on Cemtrex India’s financial statements in fiscal year 2018 and could not be substantiated. The total amount of unsubstantiated transfers recorded by Cemtrex India, and the unsupported advertising expense recorded by Cemtrex, Inc. sums to $7,100,000, corresponding with the total amount in question regarding First Commercial transfers during fiscal years 2017 and 20182022.
On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions.
As part of the Settlement Agreement, Mr. Govil was required to pay the Company consideration with a total value of $7,100,000 (the “Settlement Amount”) by entering into the Agreement. The Settlement Amount was satisfied in a combination of Mr. Govil forfeiting certain Preferred Stock and outstanding options and executing a secured note in the amount of $1,533,280. The Independenttransactions Cemtrex’s Board of Directors in coordination with Management concluded the settlement represented fair value.
In March 2021,determined were incorrectly handled and accounted for. Mr. Govil returned to the Company shares of Series A Preferred Stock, Shares of Series C Preferred Stock, shares of Series 1 Preferred Stock, and forfeited all outstanding options to purchase shares of commons stock (collectively, the “Securities”). For the purposes of accounting recognition, the Company determined the fair value of the Series A, Series C, and Series 1 Preferred stock based on the closing trading value of the Series 1 Preferred Stock on the date of the agreement. The options surrendered were valued using the Black-Scholes option pricing model.
The Company recognized the gain with respect to the surrendered Securities during the second quarter of fiscal year 2021. The gain of $3,674,165 is reported as Settlement Agreement – Related Party on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).
As discussed above, Mr. Govil also executed a secured promissory note (the “Note”) in the amount of $1,533,280. The Note maturesmatured and iswas due in full inon two yearsFebruary 26, 2023, and bearsbore interest at 9% per annum and iswas secured by all of Mr. Govil’s assets. On April 27, 2023, the Company and Mr. Govil signed an amendment to the note, extending the maturity date one year to February 28, 2024. Mr. Govil also agreed to signsigned an affidavit confessing judgment in the event of a default on the Note. While the Company believes the note isto be fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain willwas not to be recognized until the note is paid. Accordingly, the note and associated gain is not presented on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of OperationsOperations.
On November 22, 2022, the Company entered into two Asset Purchase Agreements and Comprehensive Income/(Loss)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 (see NOTE 1).
As of March 31, 2023, there was $123,812 are related to costs paid by Cemtrex related to payroll during the transition of employees to the new company. The remaining $ are related to services provided by Cemtrex Technologies Pvt. Ltd. in the normal course of business. in trade receivables due from these companies. Of these receivables $
As of March 31, 2023, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $678,330.
NOTE 14 – 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 3.3 years at March 31, 2023 and 3.0 years at March 31, 2022. Lease liabilities were $2,297,293 with $732,680 classified as short-term at March 31, 2023, and $2,576,963 with $754,495, classified as short-term at September 30, 2022. The weighted average discount rate used to measure lease liabilities was approximately 5.66% at March 31, 2023 and March 31, 2022. 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.
The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less.
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A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at March 31, 2023, is set forth below:
SCHEDULE OF RECONCILIATION OF UNDISCOUNTED CASH FLOWS TO OPERATING LEASE LIABILITIES
Years ending September 30, | Operating Leases | |||
2023 | 431,540 | |||
2024 | 755,686 | |||
2025 | 733,327 | |||
2026 | 539,279 | |||
2027 & Thereafter | 205,358 | |||
Undiscounted lease payments | 2,665,190 | |||
Amount representing interest | (367,897 | ) | ||
Discounted lease payments | $ | 2,297,293 |
Lease costs for the three and six months ended March 31, 2023 and 2022 are set forth below.:
SCHEDULE OF LEASE COSTS
2023 | 2022 | 2023 | 2022 | |||||||||||||
For the three months ended | For the six months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Lease costs: | ||||||||||||||||
Finance lease costs | $ | - | $ | - | $ | - | $ | - | ||||||||
Operating lease costs | 223,213 | 130,511 | 484,646 | 369,363 | ||||||||||||
Total lease cost | $ | 223,213 | $ | 130,511 | $ | 484,646 | $ | 369,363 |
NOTE 1415 – LINES OF CREDIT AND LONG-TERM LIABILITIES
LinesOn January 12, 2023, the Company entered into a standstill agreement with Streeterville Capital, LLC. The lender has agreed to refrain and forbear temporarily from making redemptions under the notes for a period ending on April 12, 2023. In addition, the company has agreed to an increase of credit
The Company currently has a linethe outstanding balance of credit with Fulton Bankthe note issued on September 30, 2021 for the original amount of $3,500,0005,755,000 by $148,000, and the outstanding balance of the note issued on February 22, 2022 for the original amount of $9,205,000 by $303,422. The line carriedaggregate amount of $451,422 has been recorded as interest expense on the Company’s Consolidated Condensed Statement of LIBOR plus 2.00% per annum (2.075% asOperations and Condensed Consolidated Statements of September 30, 2021). Cash Flow.
On June 10, 2022, TheFebruary 15, 2023, the Company and Fulton Bank agreed to an amendment of the line of credit to carry interest at the Secured Overnight Financing Rate (“SOFR”) plus 2.37% per annum (3.87% as of June 30, 2022). At June 30, 2022 and September 30, 2021, there was 0 outstanding balance on this line of credit. The terms of this line of credit are subject to the bank’s review annually on February 1.
Loans payable to bankMaster Agreement Regarding Financial Covenants and Financial Deliverables dated September 22, 2020.
On December 15, 2015,March 3, 2023, the Company acquired aand NIL Funding agreed at an amendment to the term loan from Fulton Bankagreement dated September 18, 2018. This agreement amends the maturity date to December 31, 2024 and amends the interest rate to 11.5%. Additionally, the Company paid $10,000 in the amountfees and made an additional principal payment of $5,250,000100,000 in orderon March 29, 2023 and is required to fund the purchasemake another additional principal payment of Advanced Industrial Services, Inc. $5,000,000100,000 of the proceeds went to direct purchase of AIS. This loan carried interest of LIBOR plus 2.25% per annum (2.325% as of September 30, 2021). On June 10, 2022,on or before March 29, 2024. The Company and Fulton Bank agreed to anhas accounted for this amendment of the loan to carry interest at SOFR plus 2.37% per annum (3.87% as of June 30, 2022). This loan is payable on December 15, 2022. This loan carries loan covenants which the Company was in compliance with as of June 30, 2022. The outstanding balance on this loan was $492,031 and $1,218,680, on June 30, 2022, and September 30, 2021, respectively. This loan is secured by the assets of the Company.a debt modification.
On May 1, 2018,3, 2023, the Company acquired a loan from Fulton Bank in the amount of $400,000 in order to fund new equipment for Advanced Industrial Services, Inc. This loan carried interest of LIBOR plus 2.00% per annum (2.075% as of September 30, 2021). On June 10, 2022, The Company and Fulton BankStreeterville Capital, LLC. agreed to an amendment ofto the loan to carry interest at SOFR plus 2.37% per annum (3.87% as of June 30, 2022). This loan is payablenote issued on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of June 30, 2022. The outstanding balance on this loan was $84,581 and $149,914, on June 30, 2022, and September 30, 2021 respectively. This loan is secured byfor the assets of the Company
On January 28, 2020, the Company acquired a loan from Fulton Bank in the amount of $360,000 in order to fund new equipment for Advanced Industrial Services, Inc. This loan carried interest of LIBOR plus 2.25% per annum (2.325% as of September 30, 2021). On June 10, 2022, The Company and Fulton Bank agreed to an amendment of the loan to carry interest at SOFR plus 2.37% per annum (3.87% as of June 30, 2022). This loan is payable on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of June 30, 2022. The outstanding balance on this loan was $201,975 and $258,060, on June 30, 2022, and September 30, 2021, respectively. This loan is secured by the assets of the Company
Notes payable
On September 30, 2020, the Company, issued a note payable to an independent private lender in the amount of $4,605,000. This note carried interest of 8% and matured on March 30, 2022. After deduction of an original issue discount of $600,000 and legal fees of $5,000, the Company received $4,000,000 in cash. As of June 30, 2022, and September 30, 2021, this note had a balance of $0 and $2,256,448, respectively. As of June 30, 2022, and September 31, 2021, this note had unamortized original issue discount balance of $0 and $200,000, respectively
On September 30, 2021, the Company, issued a note payable to an independent private lender in the amount of $5,755,000. This note carries interestThe agreement extends the maturity date to June 30, 2024, in exchange for a fee of 85% and matures on March 30, 2023. After deduction of an original issue discount ofthe outstanding balance or approximately $750,000252,912 and legal fees of $5,000,added to the Company received $5,000,000 in cash. As of June 30, 2022, and September 30, 2021, this note had aoutstanding balance of $5,306,176 and $5,005,000, respectively. As of June 30, 2022, and September 31, 2021,the note. The Company has accounted for this note had unamortized original issue discount balance of $375,000 and $750,000, respectively.amendment as a debt modification.
On February 22, 2022, the Company, issued a note payable to an independent private lender in the amount of $9,205,000. This note carries interest of 8% and matures on August 22, 2023. After deduction of an original issue discount of $1,200,000 and legal fees of $5,000, the Company received $8,000,000 in cash. Additionally, the Company issued shares of its common stock to the lender. The fair market value of the stock of $700,400 was recognized as interest expense on the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income/(Loss). As of June 30, 2022, this note had a balance of $9,470,561. As of June 30, 2022, this note had unamortized original issue discount balance of $866,667.
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On March 30, 2022, Vicon, a subsidiaryThe following table outlines the Company’s lines of the Company, amended the $5,600,000 Term Loan Agreement with NIL Funding Corporation (“NIL”). Upon closing, $500,000 of outstanding borrowings were repaid to NIL. The Agreement requires monthly payments of accrued interest that began on October 1, 2018. This note carries interest of 8.85%credit and matures on March 30, 2023. This note carries loan covenants which the Company is in compliance with as of June 30, 2022. As of June 30, 2022, and September 30, 2021, this note had a balance of $2,897,743 and $3,604,743, respectively.secured liabilities.
SCHEDULE OF LINES OF CREDIT AND LIABILITIES
Mortgage Payable
On January 28, 2020, the Company’s subsidiary, Advanced Industrial Services, Inc., completed the purchase of two buildings for a total purchase price of $3,381,433. The Company paid $905,433 in cash and acquired a mortgage from Fulton Bank in the amount of $2,476,000. This mortgage carried interest of LIBOR plus 2.50% per annum (2.575% as of September 30, 2021). On June 10, 2022, The Company and Fulton Bank agreed to an amendment of the mortgage to carry interest at SOFR plus 2.62% per annum (4.12% as of June 30, 2022 ). This mortgage is payable on January 28, 2040. This loan carries loan covenants similar to covenants on the Company’s other loans from Fulton Bank. As of June 30, 2022, the Company was in compliance with these covenants. As of June 30, 2022, and September 30, 2021, this mortgage had a balance of $2,265,733 and $2,339,114, respectively.
Paycheck Protection Program Loans
In April and May of 2020, and January and April of 2021, the Company and its subsidiaries applied for and were granted $6,413,385 in Paycheck Protection Program loans under the CARES Act. These loans bear interest of 2% and mature in two years. The Company has applied for and received loan forgiveness under the provisions of the CARES Act for $6,291,985. The remaining loan of $121,400 has been modified with a maturity date of May 5, 2025 and payments starting in June of 2022 and is recorded under Paycheck Protection Program Loans on our Condensed Consolidated Balance Sheet as of June 30, 2022, net of the short-term portion of $24,280. The issuing bank determined that this loan qualifies for loan forgiveness, however the Company is awaiting final approval from the Small Business Administration.
March 31, | September 30, | |||||||||||||
Interest Rate | Maturity | 2023 | 2022 | |||||||||||
Fulton Bank line of credit $3,500,000 - The terms of this line of credit are subject to the bank’s review annually on February 1. | Secured Overnight Financing Rate (“SOFR”) plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | N/A | $ | - | $ | - | ||||||||
Fulton Bank loan $5,250,000 for the purchase of AIS $5,000,000 of the proceeds went to the direct purchase of AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | SOFR plus 2.37%(7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | 12/15/2022 | - | 247,284 | ||||||||||
Fulton Bank loan $400,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | SOFR plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022) | 5/1/2023 | 16,070 | 63,280 | ||||||||||
Fulton Bank - $360,000 fund equipment for AIS. The Company was in compliance with loan covenants as of March 31, 2023. This loan is secured by certain assets of the Company. | SOFR plus 2.37% (7.24% as of March 31, 2023 and 5.35% as of September 30, 2022). | 5/1/2023 | 146,915 | 183,839 | ||||||||||
Fulton Bank mortgage $2,476,000. The Company was in compliance with loan covenants as of March 31, 2023. | SOFR plus 2.62% (7.49% as of March 31, 2023 and 5.6% as of September 30, 2022). | 1/28/2040 | 2,211,359 | 2,245,664 | ||||||||||
Note payable - $439,774. For the purchase of VDI. Payable in two installments on October 26, 2021, and October 26, 2022. | 5 | % | 10/26/2022 | - | 219,370 | |||||||||
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 and $250,000, as of March 31, 2023 and September 30, 2022 respectively. | 8 | % | 6/30/2024 | 5,171,271 | 4,943,929 | |||||||||
Note payable - $9,205,000. Less original issue discount $1,200,000 and legal fees $5,000,net cash received $8,000,000. shares of common stock valued at $700,400 recognized as additional original issue discount. Unamortized original issue discount balance of $422,311 and $1,064,778 as of March 31, 2023 and September 30, 2022 respectivly. | 8 | % | 8/23/2023 | 10,601,904 | 9,738,632 | |||||||||
Term Loan Agreement with NIL Funding Corporation (“NIL”) - $5,600,000 The Company was in compliance with loan covenants as of March 31, 2023. | 11.50 | % | 12/31/2024 | 2,479,743 | 2,804,743 | |||||||||
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 | 111,367 | 121,400 | |||||||||
Total lines of credit and secured liabilities | $ | 20,738,629 | $ | 20,568,141 | ||||||||||
Less: Current maturities | (16,441,488 | ) | (16,894,743 | ) | ||||||||||
Less: Unamortized original issue discount | (422,311 | ) | (1,305,778 | ) | ||||||||||
Lines of credit and secured liabilities, Long Term | $ | 3,874,830 | $ | 2,367,620 |
NOTE 1516 – STOCKHOLDERS’SHAREHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue June 30, 2022,March 31, 2023, and September 30, 2021,2022, there were and shares issued and and shares outstanding, respectively. shares of Preferred Stock, $ par value. As of
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Series 1 Preferred Stock
During the ninesix months ended June 30, 2022,March 31, 2023, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock.
As of June 30, 2022,March 31, 2023, and September 30, 2021,2022, there were and shares of Series 1 Preferred Stock issued and and shares of Series 1 Preferred Stock outstanding, respectively.
Series C Preferred Stock
On October 3, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series C Preferred Stock, consisting of up to one hundred thousand () shares, par value $. Under the Certificate of Designation, holders of Series C Preferred Stock are entitled to the number of votes equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and divided by (ii) the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any and all matters presented to our shareholders for their action or consideration, including the election of directors.
As of June 30, 2022,March 31, 2023, and September 30, 2021,2022, there were shares of Series C Preferred Stock issued and outstanding.
Common Stock
The Company is authorized to issue June 30, 2022,March 31, 2023, there were shares issued and outstanding and at September 30, 2021,2022, there were shares issued and outstanding. shares of common stock, $ par value. As of
On January 25, 2023, the Company completed a 35:1 reverse stock split on its common stock. All share and per share data have been retroactively adjusted for this reverse split. On February 2, 2023, shares were issued for rounding shares of the reverse stock split.
During the ninesix months ended June 30, 2022,March 31, 2023, shares of the Company’s common stock have been issued to satisfy $2,712,50031,331 of notes payable, $353,978168,669 in accrued interest, and $926,64632,145 of excess value of shares issued recorded as interest expense. An additional shares were issued in connection with a note payable issued on February 22, 2022.
During the three and six months ended March 31, 2023, 102,500. shares of the Company’s common stock have been issued in exchange for services valued at $
For the ninesix months ended June 30,March 31, 2023, and 2022, and 2021, the Company recognized $ and $ of share-based compensation expense on its outstanding options, respectively. As of June 30, 2022,March 31, 2023, $ of unrecognized share-based compensation expense is expected to be recognized over a period of four years.two years and six months. Future compensation amounts will be adjusted for any change in estimated forfeitures.
During the six months ended March 31, 2023, options to purchase shares of the Company’s common stock at an exercise price of $ per share and options to purchase shares of the Company’s common stock at an exercise price of $ per share were cancelled.
NOTE 1718 – COMMITMENTS AND CONTINGENCIES
The Company has itsCompany’s corporate headquarters in New York City with a 12-month lease ofsegment leases approximately 2,500100 square feet of office space in Brooklyn, NY on a month-to-month lease at a raterent of $10,000600 per month.
The Company’s ISIndustrial Services segment owns approximately 25,000 square feet of warehouse space in Manchester, PA and approximately 43,000 square feet of office and warehouse space in York, PA. The IS segment also leases approximately 15,500 square feet of warehouse space in Emigsville, PA from a third party in a three-yearthree-year lease at a monthly rent of $4,555 expiring on August 31, 2022.2025.
The Company’s ATSecurity 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 (INR456,972) 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-yearseven-year lease at a monthly rent of $28,719 expiring on March 31, 2027 and, (iii) approximately 9,400 square feet of office and warehouse space in Hampshire, England in a fifteen-yearfifteen-year lease with at a monthly rent of $7,329 (£5,771) which expires on March 24, 2031 and contains provisions to terminate in 2026.2026, and (iv) approximately 280 square feet of office space in Clovis, CA on a month-to-month lease at a monthly rent of $1,504.
NOTE 1819 – SUBSEQUENT EVENTS
Cemtrex has evaluated subsequent events upOn April 6, 2023, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock. The holders of the dateSeries 1 Preferred Stock are entitled to receive dividends at the condensed consolidated financial statements were issued. Cemtrex has concluded that there were no subsequent events that occurredrate of 10% annually, based on the $ per share Preference Amount, payable semiannually.
On April 13, 2023, the Company issued an aggregate of 150,000 of notes payable and require recognition or disclosure inaccrued interest, and $53,069 of excess value of shares issued to be recorded as interest expense. shares of common stock to settle $
On May 4, 2023, the condensed consolidated financial statements.Company issued an aggregate of shares of common stock to settle $275,000 of notes payable and accrued interest, and $87,256 of excess value of shares issued to be recorded as interest expense.
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 technology company. The Company has expanded in a wide range of sectors, including smart technologies, virtual and augmented realities, 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.
TheDuring the first quarter of fiscal year 2023, the Company has two businessreorganized its reporting segments to be in line with its current structure, consisting of (i) Advanced Technologies (AT) andSecurity, (ii) Industrial Services, (IS).and (iii) Cemtrex Corporate.
Advanced Technologies (AT)Security
Cemtrex’s Advanced TechnologiesSecurity segment operates several brands that deliver cutting-edge softwareunder 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 hardware technologies: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 (IS)
Cemtrex’s ISIndustrial Services segment operates through aunder the brand, Advanced Industrial Services (“AIS”), thatwhich offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We installAIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. We areAIS is 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.
Cemtrex Corporate
Cemtrex’s Corporate segment is the holding company of our other two segments.
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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, 2021.2022.
Results of Operations – For the three months ending June 30,March 31, 2023, and 2022 and 2021
Total revenue for the three months ended June 30,March 31, 2023, and 2022 was $16,073,789 and 2021 was $13,630,846 and $10,326,431,$11,746,017, respectively, an increase of $3,304,415,$4,327,380, or 32%37%. Loss from continuing operations for the three months ended June 30, 2022,March 31, 2023, was $2,120,849$553,761 compared to $2,300,269$4,116,783 for the three months ended June 30, 2021,March 31, 2022, a decrease on the loss of $179,420,$3,563,022, or 8%87%. Total revenue for the quarter increased, as compared to total revenue in the same period last year, due to increased demand for the Company’s products and services. Loss from operations decreased due to increased revenues as compared to the same period in the prior year.
Revenues
Our Advanced TechnologiesSecurity segment revenues for the three months ended June 30, 2022,March 31, 2023, increased by $2,316,897$3,173,789 or 40%47% to $8,162,855$9,913,898 from $5,845,958$6,740,109 for the three months ended June 30, 2021.March 31, 2022. This increase is due to an increased demand for security technologythe Security segment’s products under our Vicon brand.and services.
Our Industrial Services segment revenues for the three months ended June 30, 2022,March 31, 2023, increased by $987,518$1,153,591 or 22%23%, to $5,467,991$6,159,499 from $4,480,473$5,005,908 for the three months ended June 30, 2021.March 31, 2022. This increase is mainly due to an increased demand for the segment’s products and services.
Gross Profit
Gross Profit for the three months ended June 30, 2022,March 31, 2023, was $5,876,356$7,338,481 or 43%46% of revenues as compared to gross profit of $4,127,716$3,769,781 or 40%32% of revenues for the three months ended June 30, 2021.March 31, 2022.
Gross profit in our Security segment was $5,122,290 or 52% of the segment’s revenues for the three months ended March 31, 2023, as compared to gross profit of $2,303,763 or 34% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the three months ended June 30, 2022,March 31, 2023, compared to the three months ended June 30, 2021,March 31, 2022, due to price increases implemented throughout the companysegment in response to rising costs of our goods and transportation costs. The Company’s gross profit margins vary from product to product and from customer to customer.
Gross profit in our Industrial Services segment was $2,216,191 or 36% of the segment’s revenues for the three months ended March 31, 2023, as compared to gross profit of $1,466,018or 29% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues increased in the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to lower subcontractor costs.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2022, increased $1,278,940March 31, 2023, decreased $106,402 or 23%2% to $6,948,959$5,318,267 from $5,670,019$5,424,669 for the three months ended June 30, 2021.March 31, 2022. General and administrative expenses as a percentage of revenues was 51%were 33% and 55%46% of revenues for the three-month periods ended June 30,March 31, 2023, and 2022, and 2021, respectively. The increasereduction in general and administrative expenses is the result of increased personnel, travel, depreciationmainly related to reduced employee costs and amortization, and insurancelegal expenses.
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Research and Development Expenses
Research and Development expenses for the three months ended June 30, 2022, was $1,048,246March 31, 2023, were $1,615,341 compared to $757,966$1,239,334 for the three months ended June 30, 2021.March 31, 2022, an increase of $376,007 or 30%. Research and Development expenses are primarily related to the Advanced TechnologiesSecurity Segment’s development of proprietary technology and further developments of the SmartDesk and Artificial Intelligence (AI) and next generation solutions associated with security and surveillance systems software.
Other Income/(Expense)Expense
Other income/(expense) for the third quarter of fiscal 2022, was $1,141,206 as compared to $3,468,649 for the third quarter of fiscal 2021. Other income/(expense)expense for the three months ended June 30, 2022, included realized and unrealized gainMarch 31, 2023, was $958,634, as compared to other expense of $1,222,561 for the three months ended March 31, 2022. Other expense for the three months ended March 31, 2023, was mainly driven by interest on marketable securitiesthe Company’s debt, offset by a one-time income related to employee retention credits of $2,075,125.$416,502.
Provision for Income Taxes
During the third quarter of fiscalthree months ended March 31, 2023, and 2022, the Company had antook no provision on income tax benefit of $247,941 compared to an expense of $40,759 for the third quarter of fiscal 2021.taxes. 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 and the Company’s projected ability to utilize net loss carryforwards.
Net income/Income/(loss) attributable to Cemtrex, Inc. shareholdersfrom Discontinued Operations
The Company had a net loss attributableincome on discontinued operations of $14,232. This income is mainly related to Cemtrex,the recognition of the royalties due from CXR, Inc. shareholders of $680,739, or 5% of revenues, for the three-month period ended June 30, 2022, as compared to net income attributable to Cemtrex, Inc. shareholders of $1,098,013 or 11% of revenues,Losses on discontinued operations for the three months ended June 30, 2021. Net income/(loss)March 31, 2022 were $685,140 attributable to the operations of the Cemtrex Inc. shareholders decreasedbrands discussed in the third quarter as compared to the same period last year was primarily due to operating, and other expenses mentioned above.Note 3.
Results of Operations – For the ninesix months ending June 30,March 31, 2023, and 2022 and 2021
Total revenue for the ninesix months ended June 30,March 31, 2023, and 2022 was $28,043,639 and 2021 was $37,031,550 and $28,422,892$21,159,412, respectively, an increase of $8,608,658,$6,884,227, or 30%33%. Loss from continuing operations for the ninesix months ended June 30, 2022,March 31, 2023, was $9,994,709$3,650,514 compared to $6,308,818$7,887,648 for the ninesix months ended June 30, 2021, an increaseMarch 31, 2022, a decrease on the loss of $3,685,891,$4,237,134, or 58%54%. Total revenue for the period increased, as compared to total revenue in the same period last year, due to increased demand for the Company’s products and services. Loss from operations increaseddecreased due to increased expenses relatedrevenues and improved gross profit margins as compared to personnel costs, depreciation and amortization, insurance, travel, and research and development costs.the same period in the prior year.
Revenues
Our Advanced TechnologiesSecurity segment revenues for the ninesix months ended June 30, 2022,March 31, 2023, increased by $5,497,438$5,819,110 or 34%52% to $21,503,679$16,918,642 from $16,006,241$11,099,532 for the ninesix months ended June 30, 2021.March 31, 2022. This increase is due to an increased demand for security technologythe Security segment’s products under our Vicon brand.and services.
Our Industrial Services segment revenues for the ninesix months ended June 30, 2022,March 31, 2023, increased by $3,111,220$1,065,117 or 25%11%, to $15,527,871$11,124,997 from $12,416,651$10,059,880 for the ninesix months ended June 30, 2021.March 31, 2022. This increase is mainly due to an increased demand and increased pricing for the segment’s products and services.
Gross Profit
Gross Profit for the ninesix months ended June 30, 2022,March 31, 2023, was $13,798,161$12,381,096 or 37%44% of revenues as compared to gross profit of $12,062,070$6,992,031 or 42%33% of revenues for the ninesix months ended June 30, 2021.March 31, 2022.
Gross profit in our Security segment was $8,525,980 or 50% of the segment’s revenues for the six months ended March 31, 2023, as compared to gross profit of $4,095,828 or 37% of the segment’s revenues for the six-month period ended March 31, 2022. Gross profit as a percentage of revenues decreasedincreased in the ninesix months ended June 30, 2022,March 31, 2023, compared to the ninesix months ended June 30, 2021,March 31, 2022, due to increased costprice increases implemented throughout the segment in response to rising costs of our goods and transportation costs.
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Gross profit in our Industrial Services segment was $3,855,116 or 35% of the segment’s revenues for the six months ended March 31, 2023, as compared to gross profit of $2,896,203 or 29% of the segment’s revenues for the period ended March 31, 2022. Gross profit as a percentage of revenues as a result of supply chain difficulties and increased transportation costs for goods. The Company’s gross profit margins vary from productin the six months ended March 31, 2023, compared to product and from customerthe six months ended March 31, 2022, was primarily due to customer.lower subcontractor costs.
General and Administrative Expenses
General and administrative expenses for the ninesix months ended June 30, 2022, increased $3,980,996March 31, 2023, decreased $231,239 or 24%2% to $20,318,196$10,482,605 from $16,337,200$10,713,844 for the ninesix months ended June 30, 2021.March 31, 2022. General and administrative expenses as a percentage of revenues was 55%were 37% and 57%51% of revenues for the nine-monthsix-month periods ended June 30,March 31, 2023, and 2022, and 2021, respectively. The increasereduction in general and administrative expenses is the result of increased personnel, travel, depreciationmainly related to reduced employee costs and amortization, and insurancelegal expenses.
Research and Development Expenses
Research and Development expenses for the ninesix months ended June 30, 2022, was $3,474,674March 31, 2023, were $3,445,054 compared to $2,033,688$2,471,008 for the ninesix months ended June 30, 2021.March 31, 2022, an increase of $974,046 or 39%. Research and Development expenses are primarily related to the Advanced TechnologiesSecurity Segment’s development of proprietary technology and further developments of the SmartDesk and Artificial Intelligence (AI) and next generation solutions associated with security and surveillance systems software.
Other Income/(Expense)Expense
Other income/(expense)expense for the first three quarters of fiscal 2022,six months ended March 31, 2023, was $(316,680)$2,103,951 as compared to $8,315,729an expense of $1,694,827 for the first three quarters of fiscal year 2021.six months ended March 31, 2022. Other income/(expense)expense for the ninesix months ended June 30,March 31, 2023, was mainly driven by interest on the Company’s debt, offset by a one-time income related to employee retention credits of $416,502. Other expense for the six months ended March 31, 2022, included the gain on the forgiveness of our PPP loans of $971,500 and the issuance of common stock in connection with a note payable of $700,400 and the realized and unrealized gain on marketable securities of $2,235,738.$971,500.
Provision for Income Taxes
During the first three quarters of fiscal yearsix months ended March 31, 2023, and 2022, the Company had antook no provision on income tax benefit of $247,941 compared to an expense of $168,190 for the first three quarters of fiscal year 2021.taxes. 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 and the Company’s projected ability to utilize net loss carryforwards.
Net income/(loss) attributable to Cemtrex, Inc. shareholdersLoss from Discontinued Operations
The Company had alosses on discontinued operations of $3,225,389. The losses are comprised of the $2,455,341 loss on the sale of Cemtrex Advanced Technologies, and Cemtrex XR, Inc. The net loss of $878,284 for the six months ended March 31, 2023, the recognition of discounted royalties of $19,151, and the net gain on the recovery of cash from Vicon Industries Ltd. of $89,085. Losses on discontinued operations for the six months ended March 31, 2022 were $1,444,098 attributable to the operations of the Cemtrex Inc. shareholders of $9,879,991, or 27% of revenues, for the nine-month period ended June 30, 2022, as compared to net income attributable to Cemtrex, Inc. shareholders of $1,859,534 or 7% of revenues, for the nine months ended June 30, 2021. Net loss attributable to Cemtrex, Inc. shareholders increasedbrands discussed in the first three quarters of fiscal year 2022 as compared to the same period last year was primarily due to costs of revenues and operating expenses mentioned above.Note 3.
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. 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 $5,751,185$383,939 at June 30, 2022,March 31, 2023, compared to $15,088,892working capital of $6,252,972 at September 30, 2021.2022. This includes cash and equivalents and restricted cash of $12,961,207$7,279,334 at June 30, 2022,March 31, 2023, and $17,186,323$11,473,676 at September 30, 2021.2022. The decrease in working capital was primarily due to the Company’s usesale of cash to build inventoryassets and a shiftliabilities of liabilities to short-termdiscontinued operations and an increase in accounts payable, accrued expenses, and deferred revenue during the first three quarters of fiscal year 2022.six months ended March 31, 2023.
Trade receivables decreased $246,514 or 3% to $7,564,382 at June 30, 2022, from $7,810,896 at September 30, 2021. The decrease in trade receivables is attributable to increased collection efforts to keep our trade receivables from going past due.
Inventories increased $2,801,243 or 50% to $8,458,530 at June 30, 2022, from $5,657,287 at September 30, 2021. The increase in inventories is attributable to the purchase of inventories for new products the Company plans to ship in the future and to build up stock inventory to account for supply chain issues.
27 |
Cash used by operating activities for continuing operations for the ninesix months ended JuneMarch 31, 2023 and 2022 was $5,383,060 and $6,152,012, respectively. Cash provided by operating activities for discontinued operations for the six months ended March 31, 2023 was $2,488,144, compared to using cash of $1,310,586 for the six months ended March 31, 2022.
Trade receivables increased by $1,872,272 or 35% to $7,271,488 at March 31, 2023, from $5,399,216 at September 30, 2022 and 2021 was $10,246,799 and $6,198,611 respectively.2022. The decreaseincrease in operating cash flows was primarily duetrade receivables is attributable to purchases on inventory and payment of accounts payable and accrued expenses.increased sales in the Security segment.
Cash providedused by investment activities for continuing operations for the ninesix months ended June 30,March 31, 2023 was $252,706 compared to $5,425,408 for the six months ended March 31, 2022. Cash used by investing activities for discontinued operations for the six months ended March 31, 2022 was $517,029 compared to $154,326 for the nine-month period ending June 30, 2021.$2,349. Investing activities for the first three quarters of fiscal year 2022six months ended March 31, 2023 were driven mainly by the Company’s net gain on the purchase and sale of marketable securities and the sale of property and equipment.
Cash providedused by financing activities for the ninesix months ended June 30, 2022 and 2021 $5,902,298March 31, 2023, was $920,127 compared to usingproviding cash of $160,158$6,484,337 for the nine-month period ending June 30, 2021.six months ended March 31, 2022. Financing activities were primarily driven by payments on the Company’s debt. Financing activities for the six months ended March 31, 2022 were primarily driven by proceeds from the note payable issued in February of 2022.
We believe that our cash on hand and cash generated by operations is sufficient to meet the capital demands of our current operations for the next year (ending June 30, 2023). While our working capital and current debt indicate a substantial doubt regarding the Company’s ability to continue as a going concern, issue, 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. Any major increases in sales, particularly in newAdditionally, the Company has recently sold unprofitable brands, reducing the cash required to maintain those brands, reevaluated our pricing model on our Vicon brand to improve margins on those products, and has effected a reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improved our ability to potentially raise capital through equity offerings that we may require substantialuse to satisfy debt. In the event additional capital investment. Failureis 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 are sufficient to obtain sufficientmeet the capital could materially adversely impactdemands of our growth potential.current operations for at least the next twelve months, the 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 expansion goals and working capital needs. We currently do not have adequate cash to meet our short or long-term needs. The consolidated financial statements do not include any adjustments relating to this uncertainty.
Item 4. Controls and Procedures
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 June 30, 2022.March 31, 2023. Based on their evaluation, our management has concluded that as of June 30, 2022,March 31, 2023, our disclosure controls and procedures were not effective and there is a material weakness in our internal control over financial reporting. The material weakness relates to the Company lacking sufficient accounting personnel. The shortage of accounting personalpersonnel resulted in the Company lacking entity level controls around the review of period-end reporting processes, accounting policies and public disclosures. Additionally, the Company’s current processes and systems do not provide for necessary, timely reconciliation of certain accounts and sufficient consideration regarding recoverability of certain assets. This deficiency is common in small companies, similar to us,ours, with limited personnel.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of June 30, 2022,March 31, 2023, were not effective, and notwithstanding the material weakness in our internal control over financial reporting described below, management believes that the unaudited condensed financial statements and related financial information included in this Quarterly Report fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP.
In order to mitigate the material weakness,weaknesses, the Board of DirectorsCompany has assigned a priorityimplemented measures that it believes have mitigated these weaknesses but has not had sufficient time to the short-term and long-term improvement offully evaluate these measures. These measures include; (i) updating our internalaccounting software to ensure tighter control over financial reporting. Our Boardentries and providing improved data for timely reconciliation of Directorscertain accounts, and (ii) engaged a third-party consulting firm to provide review of period-end reporting processes, accounting policies and public disclosures. The Company believes that given more time these new measures will work with management to continuously review controls and procedures to identified deficiencies and implement remediation within ourbe sufficient in remediating the material weakness in internal controls over financial reporting and our disclosure controls and procedures.controls.
Changes in Internal Control Over Financial Reporting
While there was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, the Company is taking stepscontinuing to improve its internal controls by obtaining additional accounting personnel.through the actions mentioned above.
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.
Part II Other Information
Item 1. Legal Proceedings.
NONE.None.
Item 1A. Risk Factors
See Risk Factors included in our Annual Report on Form 10-K for 2021.filed with the SEC on December 28, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the ninesix months ended June 30, 2022 the Company issued an aggregate of 4,481,102March 31, 2023, 39,016 shares of the Company’s common stock have been issued to settle $2,712,500satisfy $31,331 of notes payable, $353,978$168,669 in accrued interest, and $926,646$32,145 of excess value of shares issued recorded as interest expense. Additionally,
During the three and six months ended March 31, 2023, 15,529 shares of the Company’s common stock have been issued in exchange for services valued at $102,500.
Subsequent to the reporting period, the Company issued another 1,000,000an aggregate of 56,966 shares in connection with the issuance of a notecommon stock to settle $425,000 of notes payable on February 22, 2022. The fair marketand accrued interest, and $140,325 of excess value of the shares $700,400 has beenissued recorded as interest expense on the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income/(Loss). expense.
Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 3.Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None.
Item 6. Exhibits
* | Filed herewith | |
1 | Incorporated by reference from Form 10-12G filed on May 22, 2008. | |
2 | Incorporated by reference from Form 8-K filed on September 10, 2009. | |
3 | Incorporated by reference from Form 8-K filed on August 22, 2016. | |
4 | Incorporated by reference from Form 8-K filed on July 1, 2016. | |
5 | ||
6 | Incorporated by reference from Form 8-K filed on June 12, 2019. | |
7 | Incorporated by reference from Form | |
8 | Incorporated by reference from Form 8-K/A filed on September 26, 2016. | |
9 | Incorporated by reference from Form 10-Q filed on May 28, 2021. | |
10 | Incorporated by reference from Form S-1 filed on August 29, 2016 and as amended on November 4, 2016, November 23, 2016, and December 7, 2016. | |
11 | Incorporated by reference from Form 8-K filed on January 24, 2017. | |
12 | Incorporated by reference from Form 8-K filed on September 8, 2017. | |
13 | Incorporated by reference from Form 8-K filed on February 26, 2021. | |
14 | Incorporated by reference from Form 8-K filed on March 22, 2019. | |
15 | Incorporated by reference from Form 10-Q filed on May 16, 2022. | |
16 | Incorporated by reference from Form 8-K filed on April 1, 2020. | |
17 | Incorporated by reference from Form 8-K filed on March 9, 2020. | |
18 | Incorporated by reference from Form 8-K filed on June 4, 2020. | |
19 | Incorporated by reference from Form 8-K filed on June 12, 2020. | |
20 | Incorporated by reference from Form 10-K filed on January 5, 2021. | |
21 | Incorporated by reference from Form 8-K filed on October 4, 2022. | |
22 | Incorporated by reference from Form 8-K filed on November 29, 2022. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Cemtrex, Inc. | |||
Dated: | By: | /s/Saagar Govil | |
Saagar Govil | |||
Chief Executive Officer | |||
Dated: | /s/Paul J. Wyckoff | ||
Paul J. Wyckoff | |||
Interim Chief Financial Officer | |||
and Principal Financial Officer |