UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

For the quarterly period ended June 30, 2020

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.)

 

276 Greenpoint Ave, Suite 208, Brooklyn, NY   11222
(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
Series 1 Warrants   CETXW   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.

 

[X] 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).

 

[X] 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 [X]   Smaller reporting company [X]
      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 [X] 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 11, 2020, the issuer had 16,743,334 shares of common stock issued and outstanding.

  

 

 

 

 

 

Table of Contents

 

CEMTREX, INC. AND SUBSIDIARIES

 

INDEX

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2020 and September 30, 2019 (Unaudited) 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and nine months ended June 30, 2020 and June 30, 2019 (Unaudited) 4
     
  Consolidated Statement of Stockholders’ Equity for the nine months ended June 30, 2020 (Unaudited) 5
     
  Consolidated Statement of Stockholders’ Equity for the nine months ended June 30, 2019 (Unaudited) 6
     
  Condensed Consolidated Statements of Cash Flow for the nine months ended June 30, 2020 and June 30, 2019 (Unaudited) 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
 Item 4. Controls and Procedures 27
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 28
     
Item 1A Risk Factors 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
     
Item 6. Exhibits 29
     
SIGNATURES 31

 

2

 

 

Part I. Financial Information

 

Item 1. Financial Statements

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

   June 30,   September 30, 
  2020   2019 
Assets        
Current assets          
Cash and equivalents  $12,939,493   $1,769,994 
Restricted cash   1,334,245    1,088,091 
Short-term investments   1,778,739    412,730 
Accounts receivables, net   4,804,475    6,458,984 
Accounts receivables - related party   221,509    227,019 
Notes receivable - short-term   1,713,371    1,713,371 
Inventory –net of allowance for inventory obsolescence   6,591,608    5,207,155 
Prepaid expenses and other assets   1,757,567    2,000,265 
Total current assets   31,141,007    18,877,609 
           
Property and equipment, net   19,158,694    16,776,552 
Right-of-use assets   2,454,603    - 
Goodwill   4,370,894    4,370,894 
Notes receivable - long-term   1,586,918    1,586,918 
Deferred tax asset   2,098,711    2,282,867 
Investment in related party   500,000    - 
Other   1,515,194    497,857 
Total Assets  $62,826,021   $44,392,697 
           
Liabilities & Stockholders’ Equity          
Current liabilities          
Accounts payable  $2,602,556   $4,236,945 
Short-term liabilities   6,334,945    6,817,534 
Lease liabilities - short-term   694,178    22,718 
Deposits from customers   35,077    33,074 
Accrued expenses   2,540,568    2,673,646 
Deferred revenue   1,457,179    1,433,803 
Accrued income taxes   311,109    419,541 
Total current liabilities   13,975,612    15,637,261 
           
Long-term liabilities          
Loans payable to bank, net of current portion   2,014,922    2,240,526 
Long-term lease liabilities, net of current portion   1,845,165    20,061 
Notes payable, net of current portion   4,435,737    2,817,661 
Mortgage payable, net of current portion   2,373,188    - 
Other long-term liabilities   3,273,320    1,221,549 
Series 1 preferred stock dividends payable   1,026,900    - 
Deferred Revenue - long-term   366,805    489,535 
Total long-term liabilities   15,336,037    6,789,332 
           
Total liabilities   29,311,649    22,426,593 
           
Commitments and contingencies   -    - 
           
Stockholders’ equity          
Preferred stock , $0.001 par value, 20,000,000 shares authorized, Series 1, 3,000,000 shares authorized, 2,216,683 shares issued and outstanding as of June 30, 2020 and 2,110,718 shares issued and outstanding as of September 30, 2019 (liquidation value of $10 per share)   2,217    2,111 
Series A, 1,000,000 shares authorized, issued and outstanding at June 30, 2020 and September 30, 2019   1,000    1,000 
Series C, 100,000 shares authorized, issued and outstanding at June 30, 2020   100    - 
Common stock, $0.001 par value, 20,000,000 shares authorized, 16,263,715 shares issued and outstanding at June 30, 2020 and 3,962,790 shares issued and outstanding at September 30, 2019   16,264    3,963 
Additional paid-in capital   60,543,674    40,344,837 
Accumulated deficit   (28,812,321)   (20,067,685)
Treasury stock at cost   (190,483)   - 
Accumulated other comprehensive income   949,424    796,004 
Cemtrex stockholders’ equity   32,509,875    21,080,230 
Non-controlling interest   1,004,497    885,874 
Total liabilities and stockholders’ equity  $62,826,021   $44,392,697 

 

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 Comprehensive Income/(Loss)

(Unaudited)

 

   For the three months ended   For the nine months ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Revenues  $8,440,867   $10,928,933   $32,774,797   $28,371,927 
Cost of revenues   5,161,015    6,870,920    18,800,355    17,319,532 
Gross profit   3,279,852    4,058,013    13,974,442    11,052,395 
                     
Operating expenses                    
General and administrative   5,606,659    4,057,081    16,187,890    14,365,707 
Research and development   331,936    285,853    1,113,455    1,136,981 
Total operating expenses   5,938,595    4,342,934    17,301,345    15,502,688 
Operating loss   (2,658,743)   (284,921)   (3,326,903)   (4,450,293)
                     
Other income (expense)                    
Other Income   158,134    150,561    830,251    145,991 
Loss on equity interests   -    -    -    (342,776)
Interest expense   (1,982,101)   (2,313,415)   (3,812,921)   (2,945,427)
Total other expense, net   (1,823,967)   (2,162,854)   (2,982,670)   (3,142,212)
                     
Net loss before income taxes   (4,482,710)   (2,447,775)   (6,309,573)   (7,592,505)
Income tax benefit/(expense)   (7,658)   780,742    (197,201)   1,954,251 
Loss from continuing operations   (4,490,368)   (1,667,033)   (6,506,774)   (5,638,254)
                     
Loss from discontinued operations, net of tax   -    (221,923)   -    (767,026)
                     
Net loss   (4,490,368)   (1,888,956)   (6,506,774)   (6,405,280)
                     
Less noncontrolling interest   (35,751)   36,662    151,312    (319,493)
Net loss  $(4,454,617)  $(1,925,618)  $(6,658,086)  $(6,085,787)
Preferred dividends   -    1,007,720    2,086,550    1,965,500 
Net loss available to Cemtrex, Inc. shareholders  $(4,454,617)  $(2,933,338)  $(8,744,636)  $(8,051,287)
                     
Other comprehensive loss                    
Foreign currency translation gain/(loss)   310,797    (169,928)   153,420    (1,198,688)
Other comprehensive income attribitable to noncontrolling interest   (5,515)   -    (32,689)   - 
Comprehensive loss   305,282    (169,928)   120,731    (1,198,688)
                     
Comprehensive loss  $(4,149,335)  $(3,103,266)  $(8,623,905)  $(9,249,975)
                     
Loss Per Share-Basic                    
Continuing Operations  $(0.41)  $(1.47)  $(1.22)  $(3.49)
Discontinued Operations  $-   $(0.12)  $-   $(0.37)
Loss Per Share-Diluted                    
Continuing Operations  $(0.41)  $(1.47)  $(1.22)  $(3.49)
Discontinued Operations  $-   $(0.12)  $-   $(0.37)
                     
Weighted Average Number of Shares-Basic   10,933,926    1,844,895    7,161,785    2,087,195 
Weighted Average Number of Shares-Diluted   10,933,926    1,844,895    7,161,785    2,087,195 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

4

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

  

Preferred Stock Series 1

Par Value $0.001

  

Preferred Stock Series A

Par Value $0.001

  

Preferred Stock Series C

Par Value $0.001

  

Common Stock

Par Value $0.01

      Retained       Accumulated        
   Number of      

Number

of

       Number of      

Number

of

       Additional Paid-in   Earnings (Accumulated   Treasury Stock,   other Comprehensive   Cemtrex Stockholders’   Non- controlling 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit)   At cost   Income(loss)   Equity   interest 
Balance at September 30, 2019   2,110,718   $2,111    1,000,000   $1,000    -   $-    3,962,790   $3,963   $40,344,837   $(20,067,685)  $-   $796,004   $21,080,230   $885,874 
Comprehensive income                                                          564,597    564,597      
Share-based compensation                       100,000    100              119,004                   119,104      
Shares issued to pay accounts payable                                 18,358    18    27,520                   27,538      
Shares sold in Securities Purchase Agreements, net of offering costs                                 338,393    338    359,712                   360,050      
Stock issued to pay notes payable                                 105,042    105    130,147                   130,252      
Dividends paid in Series 1 preferred shares   105,965    106                                  1,059,544    (1,059,650)             -      
Noncontrolling interest                                                          18,429    18,429    176,482 
Net loss                                                (334,165)             (334,165)     
Balance at December 31, 2019   2,216,683   $2,217    1,000,000   $1,000    100,000   $100    4,424,583   $4,424   $42,040,764   $(21,461,500)  $-   $1,379,030   $21,966,035   $1,062,356 
Comprehensive income                                                          (749,148)   (749,148)     
Share-based compensation                                           24,104                   24,104      
Shares sold in Securities Purchase Agreements, net of offering costs                                 847,000    847    1,160,253                   1,161,100      
Stock issued to pay notes payable                                 2,518,045    2,519    3,499,747                   3,502,266      
Accrued dividends                                                (1,026,900)             (1,026,900)     
Shares issued for services                                 150,000    150    170,850                   171,000      
Purchase of treasury stock                                                     (190,483)        (190,483)     
Noncontrolling interest                                                          8,745    8,745    (16,593)
Net loss                                                (1,869,304)             (1,869,304)     
Balance at March 31, 2020   2,216,683   $2,217    1,000,000   $1,000    100,000   $100    7,939,628   $7,940   $46,895,718   $(24,357,704)  $(190,483)  $638,627   $22,997,415   $1,045,763 
Comprehensive income                                                          305,282    305,282      
Share-based compensation                                           24,104                   24,104      
Shares sold in Securities Purchase Agreements, net of offering costs                                 5,458,479    5,459    10,095,311                   10,100,770      
Stock issued to pay notes payable                                 2,595,608    2,595    3,298,811                   3,301,406      
Shares issued for services                                 270,000    270    229,730                   230,000      
Noncontrolling interest                                                          5,515    5,515    (41,266)
Net loss                                                (4,454,617)             (4,454,617)     
Balance at June 30, 2020   2,216,683   $2,217    1,000,000   $1,000    100,000   $100    16,263,715   $16,264   $60,543,674   $(28,812,321)  $(190,483)  $949,424   $32,509,875   $1,004,497 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (Continued)

(Unaudited)

 

  

Preferred Stock
Series 1

Par Value $0.001

  

Preferred Stock
Series A

Par Value $0.001

  

Common Stock

Value $0.01

   Additional   Retained Earnings   Accumulated other   Total   Non-controlling 
   Number of       Number of       Number of       Paid-in   (Accumulated   Comprehensive   Stockholders’   interest of 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit)   Income(loss)   Equity   Vicon 
Balance at September 30, 2018   1,914,168   $1,914    1,000,000   $1,000    1,621,719   $1,622   $31,496,671   $4,262,756   $(483,297)  $35,280,666   $- 
Foreign currency translations                                 -         (857,552)   (857,552)     
Share-based compensation                                 36,108              36,108      
Stock issued in Subscription Rights Offering                       25,126    25    138,669              138,694      
Stock issued to pay notes payable                       26,342    26    224,974              225,000      
Dividends paid in Series 1 preferred shares   95,778    96                        957,684    (957,780)        -      
Net loss                                 -    (2,176,298)        (2,176,298)     
Balance at December 31, 2018   2,009,946   $2,010    1,000,000   $1,000    1,673,187   $1,673   $32,854,106   $1,128,678   $(1,340,849)  $32,646,618   $- 
Foreign currency translations                                 -         (171,208)   (171,208)     
Share-based compensation                                 36,108              36,108      
Stock issued to pay notes payable                       117,774    118    713,772              713,890      
Shares issued in trust for ATM Offering                       27,953    27    (27)             -      
Shares sold in ATM Offering                       34,547    35    203,644              203,679      
Shares sold in Securities Purchase Agreement                       2,500    3    129,508              129,511      
Net loss                                      (1,983,867)        (1,983,867)     
Non-controlling interest of Vicon                                      -         -    781,871 
Balance at March 31, 2019   2,009,946   $2,010    1,000,000   $1,000    1,855,961   $1,856   $33,937,111   $(855,189)  $(1,512,057)  $31,574,731   $781,871 
Foreign currency translations                                           (169,928)   (169,928)     
Stock issued to pay notes payable                       559,378    559    1,715,015              1,715,574      
Share-based compensation                                 36,108              36,108      
Series B Conversion                       175,562    176    356,270              356,446      
Reverse split rounding shares                       3,338    3                   3      
Discount on Series B (deemed dividend)                                 (154,511)             (154,511)     
Dividends paid in Series 1 preferred shares   100,772    101                        1,007,618    (1,007,719)        -      
QTR Results                                      (1,925,618)         (1,925,618)      
Non-controlling interest of Vicon                                                -    (323,337)
Balance at June 30, 2019   2,110,718   $2,111    1,000,000   $1,000    2,594,239   $2,594   $36,897,611    (3,788,526)  $(1,681,985)   31,432,805   $458,534 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

Cemtrex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   For the nine months ended 
   June 30, 
   2020   2019 
Cash Flows from Operating Activities          
Net loss  $(6,506,774)  $(6,405,280)
Net loss from discontinued operations   -    (767,026)
Net loss from continuing operations   (6,506,774)   (5,638,254)
           
Adjustments to reconcile net loss to net cash provided/(used) by operating activities:          
Depreciation and amortization   2,158,938    3,208,933 
Gain/(loss) on disposal of property & equipment   457    465,029 
Amortization of right-of-use assets   352,691    - 
Change in allowance for inventory obsolescence   726,824    25,469 
Change in allowance for doubtful accounts   126    236,113 
Share-based compensation   167,312    108,324 
Interest expense paid in equity shares   2,505,924    1,253,516 
Changes in operating assets and liabilities net of effects from acquisition of subsidiaries:          
Accounts receivable   1,654,383    1,283,756 
Accounts receivable - related party   5,510    (50,904)
Inventory   (2,111,277)   (175,159)
Prepaid expenses and other curent asstets   242,698    (719,271)
Other assets   (1,017,337)   (1,135,190)
Other liabilities   (117,667)   354,332 
Accounts payable   (1,205,851)   19,660 
Accounts payable - related party   -    155,600 
Deposits from customers   2,003    9,390 
Accrued expenses   938,132    2,367,665 
Deferred revenue   (99,354)   109,493 
Income taxes payable   75,724    (153,734)
Net cash provided by operating activities - continuing operations   (2,227,538)   1,724,768 
Net cash provided by operating activities - discontinued operations   -    1,636,714 
Net cash provided/(used) by operating activities   (2,227,538)   3,361,482 
           
Cash Flows from Investing Activities          
Net change in self-insured benefit deposits   (246,154)   (468,870)
Purchase of property and equipment   (4,541,537)   (1,525,998)
Purchase of marketable securities   (1,366,009)   - 
Investment in related party   (500,000)   - 
Net cash used by investing activities - continuing operations   (6,653,700)   (1,994,868)
Net cash used by investing activities - discontinued operations   -    (119,482)
Net cash used by investing activities   (6,653,700)   (2,114,350)
           
Cash Flows from Financing Activities          
Proceeds from notes payable   4,485,000    1,100,000 
Payments on notes payable   (726,640)   (264,560)
Proceeds on bank loans   5,947,101    - 
Payments on bank loans   (224,196)   (1,453,506)
Proceeds from securities purchase agreements   12,462,648    - 
Expenses on securities purchase agreements   (840,728)   - 
Proceeds from at-the-market offerings   -    490,237 
Expenses on at-the-market offerings   -    (18,323)
Proceeds from the issuance of Series B Preferred Stock   -    500,000 
Expenses from the issuance of Series B Preferred Stock   -    (25,000)
Settlement of Series B Preferred Stock in cash        (273,092)
Revolving line of credit   (425,812)   122,918 
Purchases of treasury stock   (190,483)   - 
Payments on lease liabilities   (310,730)   (18,812)
Net cash provided by financing activities - continuing operations   20,176,160    159,862 
Net cash used by financing activities - discontinued operations   -    (78,123)
Net cash provided by financing activities   20,176,160    81,739 
           
Effect of currency translation   120,731    (1,198,688)
Net increase in cash, cash equivalents, and restricted cash   11,294,922    1,328,871 
Cash, cash equivalents, and restricted cash at beginning of period   2,858,085    2,315,935 
Cash, cash equivalents, and restricted cash at end of period  $14,273,738   $2,446,118 
           
Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash          
Cash and equivalents  $12,939,493   $1,572,825 
Restricted cash   1,334,245    873,293 
Total cash, cash equivalents, and restricted cash  $14,273,738   $2,446,118 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during the period for interest  $342,268   $715,722 
           
Cash paid during the period for income taxes  $75,724   $162,871 
           
Supplemental Schedule of Non-Cash Investing and Financing Activities          
Stock issued to pay for products and/or services  $428,538   $- 
Stock issued to pay notes payable  $6,933,924   $1,790,469 
Dividends paid in equity shares  $1,059,650   $1,965,500 
Amortization of original issue discounts on notes payable  $757,278   $11,889 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

7

 

 

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 research & development from a small environmental monitoring instruments company into a world leading multi-industry technology company. The Company now specializes in the development of Internet of Things (IoT), Artificial Intelligence (AI) and Virtual Reality (VR) enabled technologies that drive innovation in a wide range of sectors, including consumer products, industrial manufacturing, digital applications, and intelligent security & surveillance systems. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.

 

The Company continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives and positioned to maximize growth and return in the coming years. During fiscal 2019, the Company made a strategic decision to exit its Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. During fiscal 2019, the Company also reached a strategic decision to exit its original environmental products business and sold those operations.

 

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

 

Advanced Technologies (AT)

 

Cemtrex’s Advanced Technologies segment delivers cutting-edge technologies in the Internet of Things (IoT), Wearables and Smart Devices, such as the SmartDesk. Through the Company’s advanced engineering and product design, Company delivers Virtual Reality (VR) and Augmented Reality (AR) products that provide higher productivity, progressive design and impactful experiences for consumer products, digital applications and industrial manufacturing.

 

The AT business segment also includes the Company’s majority owned subsidiary, Vicon Industries, which provides end-to-end security solutions to meet the toughest corporate, industrial and governmental security challenges. Vicon’s products include browser-based Video monitoring systems and facial recognition systems, cameras, servers, and access control systems for every aspect of security and surveillance in industrial and commercial facilities, federal prisons, hospitals, universities, schools, and federal and state government offices. Vicon provides cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI).

 

Industrial Services (IS)

 

Cemtrex’s IS segment, offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals among others. We are a leading provider of reliability-driven maintenance and contracting solutions for the machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.

 

8

 

 

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, 2019 of Cemtrex Inc.

 

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 Ltd., Cemtrex Technologies Pvt. Ltd., and Advanced Industrial Services, Inc. and the Company’s majority-owned subsidiary Vicon Industries, Inc. and its subsidiaries, Telesite USA, IQInVision, Vicon Industries Ltd., Vicon Deutschland GmbH, and Vicon Systems, Ltd. All inter-company balances and transactions have been eliminated in consolidation.

 

Significant Accounting Policies and Recent 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, 2019, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.

 

Recently Adopted Accounting Pronouncements

 

Adoption of ASU 2016-02 (Topic 842)

 

On October 1, 2019, the Company adopted ASU 2016-02 (Topic 842), “Leases”. ASU 2016-02 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 may use the effective date method and elected certain practical expedients allowing the Company not to reassess:

 

  ● whether expired or existing contracts contain leases under the new definition of a lease;
  ● lease classification for expired or existing leases; and
  ● whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.

 

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.

 

See Note 10 for the impact implementing this standard had on our financial statements.

 

9

 

 

Recently Issued Accounting Standards

 

In August 2018, the FASB issued amended guidance, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements based on the concepts in the FASB Concepts Statements, including the consideration of costs and benefits. The new standard is effective for the Company from October 1, 2020. The Company believes adoption will not have a material effect on the Company’s financial position.

 

In December 2019, the FASB issued amended guidance, Simplifying the Accounting for Income Taxes, to remove certain exceptions to the general principles from ASC 740 - Income Taxes, and to improve consistent application of U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company on October 1, 2021; early adoption is permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statement disclosures, results of operations and financial position.

 

NOTE 3 – LOSS PER COMMON SHARE

 

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 months ended   For the nine months ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
                 
Basic weighted average shares outstanding   10,933,926    1,844,895    7,161,785    2,087,195 
Dilutive effect of options   -    -    -    - 
Dilutive effect of convertible debt   -    -    -    - 
Diluted weighted average shares outstanding   10,933,926    1,844,895    7,161,785    2,087,195 

 

For the three and nine months ended June 30, 2020 and 2019, 1,483,965 and 538,076 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the effect of their inclusion would be anti-dilutive.

 

NOTE 4 – SEGMENT INFORMATION

 

The Company reports and evaluates financial information for two segments: Advanced Technologies (AT) segment, and the Industrial Services (IS) 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: chemical, steel, printing, construction, & petrochemical.

 

10

 

 

The following tables summarize the Company’s segment information:

 

   For the three months ended   For the nine months ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
Revenues from external customers                    
Advanced Technologies  $4,977,424   $6,528,486   $18,389,057   $13,924,097 
Industrial Services   3,463,443    4,400,447    14,385,740    14,447,830 
Total revenues  $8,440,867   $10,928,933   $32,774,797   $28,371,927 
                     
Gross profit                    
Advanced Technologies  $1,837,957   $2,528,340   $8,712,543   $5,831,813 
Industrial Services   1,441,895    1,529,673    5,261,899    5,220,582 
Total gross profit  $3,279,852   $4,058,013   $13,974,442   $11,052,395 
                     
Operating loss                    
Advanced Technologies  $(1,854,346)  $(391,053)  $(2,494,371)  $(4,058,782)
Industrial Services   (804,397)   106,132    (832,532)   (391,511)
Total operating loss  $(2,658,743)  $(284,921)  $(3,326,903)  $(4,450,293)
                     
Other expense                    
Advanced Technologies  $(1,795,637)  $(351,466)  $(2,868,033)  $(545,851)
Industrial Services   (28,330)   (1,811,388)   (114,637)   (2,596,361)
Total other expense  $(1,823,967)  $(2,162,854)  $(2,982,670)  $(3,142,212)
                     
Depreciation and Amortization                    
Advanced Technologies  $253,712   $245,248   $1,019,779   $1,112,240 
Industrial Services   477,508    750,293    1,139,159    2,096,693 
Total depreciation and amortization  $731,220   $995,541   $2,158,938   $3,208,933 

 

   June 30,   September 30, 
   2020   2019 
Identifiable Assets          
Advanced Technologies  $38,335,385   $19,365,582 
Industrial Services   15,673,359    16,209,838 
Discontinued operations   8,817,277   $8,817,277 
Total Assets  $62,826,021   $44,392,697 

 

 

The Company generates revenue from product sales and services from its subsidiaries located in the United States, The United Kingdom, and India. Revenue information for the Company is as follows:

 

   For the three months ended   For the nine months ended 
   June 30,   June 30,   June 30,   June 30, 
Revenues  2020   2019   2020   2019 
U.S. Operations  $8,341,384   $10,811,119   $32,464,794   $27,987,544 
Non-U.S. Operations   99,483    117,814    310,003    384,383 
   $8,440,867   $10,928,933   $32,774,797   $28,371,927 

 

11

 

 

NOTE 5 – 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 measure 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.

 

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, goodwill, intangible assets, and property, plant and equipment, which are measured at fair value using a discounted cash flow approach when they are impaired. 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, 2020 and 2019 are as follows;

 

   Quoted Prices   Significant       
   in Active   Other   Significant   Balance 
   Markets for   Observable   Unobservable   as of 
   Identical Assets   Inputs   Inputs   June 30, 
   (Level 1)   (Level 2)   (Level 3)   2020 
Assets                    
Investment in marketable securities                            
(included in short-term investments)  $1,778,739   $-   $-   $1,778,739 
                          
   $1,778,739   $-   $-   $1,778,739 

 

   Quoted Prices   Significant       
   in Active   Other   Significant   Balance 
   Markets for   Observable   Observable   as of 
   Identical Assets   Inputs   Inputs   June 30, 
   (Level 1)   (Level 2)   (Level 3)   2019 
Assets                              
Investment in marketable securities                    
(included in short-term investments)  $13,692   $-   $-   $13,692 
                     
   $13,692   $-   $-   $13,692 

 

12

 

 

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 $1,334,245 as of June 30, 2020. The Company also records a liability for claims that have been incurred but not recorded at the end of each year. The amount of the liability is determined by Benecon Group. The liability recorded in accrued expenses amounted to $124,626 and $118,889 as of June 30, 2020 and September 30, 2019, respectively.

 

NOTE 7 – ACCOUNTS RECEIVABLE, NET

 

Accounts receivables, net consist of the following:

 

   June 30,   September 30, 
   2020   2019 
Accounts receivable  $5,410,652   $7,065,035 
Allowance for doubtful accounts   (606,177)   (606,051)
   $4,804,475   $6,458,984 

 

Accounts receivable include amounts due for shipped products and services rendered.

 

Allowance for doubtful accounts include estimated losses resulting from the inability of our customers to make required payments.

 

NOTE 8 – INVENTORY, NET

 

Inventory, net, consist of the following:

 

   June 30,   September 30, 
   2020   2019 
Raw materials  $3,767,732   $4,917,700 
Work in progress   1,420,929    543,857 
Finished goods   6,067,983    3,683,810 
    11,256,644    9,145,367 
           
Less: Allowance for inventory obsolescence   (4,665,036)   (3,938,212)
Inventory –net of allowance for inventory obsolescence  $6,591,608   $5,207,155 

 

13

 

 

NOTE 9 – PROPERTY AND EQUIPMENT

 

Property and equipment are summarized as follows:

 

   June 30,   September 30, 
   2020