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
2 |
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 Par Value $0.001 | Preferred
Stock 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 |
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 |