UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
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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) | (Restated) | |||||||
| June 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Short-term investments | ||||||||
| Trade receivables, net | ||||||||
| Trade receivables - related party | ||||||||
| Inventory –net of allowance for inventory obsolescence | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Assets held for sale | ||||||||
| Goodwill | ||||||||
| Other | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities & Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Short-term liabilities | ||||||||
| Lease liabilities - short-term | ||||||||
| Deposits from customers | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Accrued income taxes | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Loans payable to bank | ||||||||
| Long-term lease liabilities | ||||||||
| Notes payable | ||||||||
| Mortgage payable | ||||||||
| Other long-term liabilities | ||||||||
| Paycheck Protection Program Loans | ||||||||
| Deferred Revenue - long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | - | - | ||||||
| Shareholders’ equity | ||||||||
| Preferred stock , $ par value, shares authorized, | ||||||||
| Series 1, shares
authorized, shares issued and outstanding as of June 30, 2021 and shares issued and outstanding as of September
30, 2020 (liquidation value of $ | ||||||||
| Series A, shares authorized, shares issued and outstanding at June 30, 2021 and shares issued and outstanding at September 30, 2020 | ||||||||
| Series C, shares authorized, shares issued and outstanding at June 30, 2021 and shares issued and outstanding at September 30, 2020 | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding at June 30, 2021 and shares issued and outstanding at September 30, 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings (accumulated deficit) | ( | ) | ( | ) | ||||
| Treasury stock at cost | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ||||||||
| Total Cemtrex stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
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)
| For the three months ended | For the nine months ended | |||||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income/(loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income/(expense) | ||||||||||||||||
| Other income/(expense) | ||||||||||||||||
| Settlement Agreement - Related Party | - | - | - | |||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income/(expense), net | ( | ) | ( | ) | ||||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax benefit/(expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income/(loss) | ( | ) | ( | ) | ||||||||||||
| Less income in noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Net income/(loss) attributable to Cemtrex, Inc. shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income/(loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Other comprehensive income/(loss) | ||||||||||||||||
| Foreign currency translation gain/(loss) | ( | ) | ( | ) | ||||||||||||
| Defined benefit plan actuarial gain/(loss) | - | - | - | |||||||||||||
| Comprehensive income/(loss) | ( | ) | ( | ) | ||||||||||||
| Less comprehensive income/(loss) attributable to noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive income/(loss) attributable to Cemtrex, Inc. shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income/(loss) Per Share-Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income/(loss) Per Share-Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted Average Number of Shares-Basic | ||||||||||||||||
| Weighted Average Number of Shares-Diluted | ||||||||||||||||
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/Restated)
| Preferred Stock Series 1 | Preferred Stock Series A | Preferred Stock Series C | Common Stock | Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Par Value $0.001 | Par Value $0.01 | Additional | Earnings | Treasury | other | Cemtrex | Non- | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of |
Paid-in |
(Accumulated |
Stock, |
Comprehensive | Stockholders’ | controlling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | At cost | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020, as reported | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | $ | |||||||||||||||||||||||||||||||||||||||||
| Adjustment | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020, as restated | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) attributable to noncontrolling interest | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income/(loss) attributable to noncontrolling interest | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined benefit plan actuarial gain/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income in noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares and options surrendered in settelment agreement | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares granted to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income in noncontrolling interest | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
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/Restated)
| Preferred Stock Series 1 | Preferred Stock Series A | Preferred Stock Series C | Common Stock Par | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Par Value $0.001 | 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 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | | $ | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay accounts payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) attributable to noncontrolling interest | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income/(loss) attributable to noncontrolling interest | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares sold in Securities Purchase Agreements, net of offering costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
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/Restated)
| For the nine months ended June 30, | ||||||||
| Cash Flows from Operating Activities | 2021 | 2020 | ||||||
| (unaudited) | (restated) | |||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided/(used) by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on disposal of property and equipment | ||||||||
| Amortization of right-of-use assets | ||||||||
| Change in allowance for doubtful accounts | ( | ) | ||||||
| Share-based compansation | ||||||||
| Income tax expense/ (benefit) | ( | ) | ||||||
| Interest expense paid in equity shares | ||||||||
| Accrued interest on notes payable | ||||||||
| Amortization of original issue discounts on notes payable | ||||||||
| Gain on marketable securities | ( | ) | ( | ) | ||||
| Settlement Agreement - Related Party | ( | ) | ||||||
| Discarge of Paycheck Protection Program Loans | ( | ) | ||||||
| Changes in operating assets and liabilities net of effects from acquisition | ||||||||
| of subsidiaries: | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable - related party | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other curent asstets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Deposits from customers | ||||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Income taxes payable | ( | ) | ||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Investment in Virtual Driver Interactive | ( | ) | ||||||
| Investment in MasterpieceVR | ( | ) | ||||||
| Investment in related party | ( | ) | ||||||
| Proceeds from sale of marketable securities | ||||||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Purchases of treasury stock | ( | ) | ||||||
| Note Receivable - Related party | ||||||||
| Net cash used by investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds on bank loans | ||||||||
| Payments on bank loans | ( | ) | ( | ) | ||||
| Proceeds from Paycheck Protection Program Loans | ||||||||
| Proceeds from securities purchase agreements | ||||||||
| Payments on capital lease liabilities | ( | ) | ( | ) | ||||
| Expenses on securities purchase agreements | ( | ) | ||||||
| Revolving line of credit | ( | ) | ||||||
| Net cash provided/(used) by financing activities | ( | ) | ||||||
| Effect of currency translation | ( | ) | ||||||
| Net increase in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | |||||||
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
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 (Continued)
(Unaudited/Restated)
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Investment in Virtual Driver Interactive | $ | $ | ||||||
| Stock issued to pay for products and/or services | $ | $ | ||||||
| Stock issued to pay notes payable | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
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.
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 2018, the Company made a strategic decision to exit its Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. Accordingly, the Company has reported the results of the Electronics Manufacturing business as discontinued operations in the Consolidated Statements of Operations and in the Consolidated Balance Sheets. These changes have been applied for all periods presented. During fiscal 2019, the Company also reached a strategic decision to exit the environmental products business, which was part of the Industrial Services Segment.
Now
the Company has
Advanced Technologies (AT)
Cemtrex’s Advanced Technologies segment delivers cutting-edge technologies in the Internet of Things (IoT) and Smart Devices, such as the SmartDesk. Through the Company’s advanced engineering and product design, the Company delivers Virtual Reality (VR) and Augmented Reality (AR) solutions that provide higher productivity, progressive design and impactful experiences for consumer products, and various commercial and industrial applications. The Company is in the process of developing its own virtual reality applications for commercialization over the next couple years.
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 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 cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
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.
| 9 |
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 $
For over 10 years, VDI has been known for its effective and engaging driver training systems, designed for users 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. Result for VDI will be reported under the AT segment.
The
Company paid $
Strategic Investment
On
November 13, 2020, Cemtrex made a $
Potential Impacts of COVID-19 on our Business
The current COVID-19 pandemic has impacted our business operations and the results of our operations in this fiscal year, primarily with delays in expected orders by many customers and new product development. Overall bookings level in both business segments have been impacted. In addition, due to delays in certain supply chain areas, the expected launch times of our new products and new versions of existing products have been delayed for several months. We are also starting to see the costs of certain components that are facing shortages, increase in price which may affect gross margins.
The broader implications of COVID-19 on our results from operations going forward remains uncertain. The COVID-19 pandemic 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.
The extent of the pandemic’s 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 duration, scope and severity of the pandemic, 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.
| 10 |
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, 2020, of Cemtrex Inc.
The accompanying condensed consolidated balance sheet has been derived from the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 30, 2020, adjusted and restated as further discussed in Note 2 of these financial statements. Additionally, the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss), the Condensed Consolidated Statement of Stockholders’ Equity, the Condensed Consolidated Statements of Cash Flows, and notes to the financial statements related to the results of the three- and nine-month periods ended June 30, 2020, have been restated.
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., Griffin Filters, LLC, Cemtrex XR Inc., and Advanced Industrial Services, Inc. and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiaries, Telesite USA, IQInVision, Vicon Industries Ltd., and Vicon Systems, Ltd. All inter-company balances and transactions have been eliminated in consolidation.
Restatement of Financial Statements
Background
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 $
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 $
| 11 |
As part of the restatement investigation, it was determined that the Company did not follow GAAP in the treatment of its Series 1 Preferred dividends. The Company currently has a deficit in retained earnings and in accordance with guidance has reversed the accrual for dividends payable and placed the amount of the accrual back into retained earnings.
Position and Adjusting Entries
The
Company has determined that these transactions are not material in the years that they occurred and conclude that prior financial reports
can be relied upon. The Company’s determination is based on the following: The adjustments do not cause any changes to the previously
reported cash and debt balances as of the end of each of the periods in FY 2019 and 2020. The adjustments also do not cause any changes
to revenues in any of the prior periods. In addition, the Company expects to maintain compliance with its debt covenants based on a preliminary
review of the covenants for all the impacted periods. The Company has also determined that the adjustments have little effect on the
trend of earnings over the last three fiscal years.
The table below represents the balances of the affected accounts on the Condensed Consolidated Balance Sheets as of September 30, 2020, the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and nine months ended June 30, 2020, Condensed Consolidated Statement of Stockholders’ Equity, and the Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2020.
Condensed Consolidated Balance Sheets
| Balance as reported on September 30, 2020 | Adjustment of net value of intangible assets | Cumulative effect of derecognition of expenses | Loss on amounts transferred to First Commercial | Restatement on Dividends | Cumulative effect of currency translation | Adjusted balance at September 30, 2020 | ||||||||||||||||||||
| Property and equipment, net | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Series 1 preferred stock dividends payable | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Additional paid-in capital | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Retained earnings (accumulated deficit) | $ | ( | ) | $ | $ | ( | ) | $ | $( | |||||||||||||||||
| Accumulated other comprehensive income | $ |
| $ | $ | ||||||||||||||||||||||
Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)
| For the three months ended | ||||||||||||
| June 30, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Net Income income/(loss) attributable to Cemtrex, Inc. shareholders | $ | ( | ) | $ | $ | ( | ) | |||||
| Foreign currency translation gain/(loss) | $ | $ | ( | ) | $ | |||||||
| Loss Per Share-Basic | $ | ( | ) | $ | $ | ( | ) | |||||
| Loss Per Share-Diluted | $ | ( | ) | $ | $ | ( | ) | |||||
| For the nine months ended | ||||||||||||
| June 30, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Net loss available to Cemtrex, Inc. shareholders | $ | ( | ) | $ | $ | ( | ) | |||||
| Foreign currency translation gain | $ | $ | $ | |||||||||
| Loss Per Share-Basic | $ | ( | ) | $ | $ | ( | ) | |||||
| Loss Per Share-Diluted | $ | ( | ) | $ | $ | ( | ) | |||||
| 12 |
Condensed Consolidated Statement of Stockholders’ Equity
| For the nine months ended | ||||||||||||
| June 30, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Retained earnings (accumulated deficit) at September 30, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net income/(loss) | $ | ( | ) | $ | $ | ( | ) | |||||
| Retained earnings (accumulated deficit) at June 30, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Accumulated other comprehensive income/(loss)at September 30, 2019 | $ | $ | $ | |||||||||
| Comprehensive income/(loss) | $ | $ | $ | |||||||||
| Accumulated other comprehensive income/(loss) at June 30, 2020 | $ | $ | $ | |||||||||
| Additional paid-in capital | $ | $ | ( | ) | $ | |||||||
Condensed Consolidated Statements of Cash Flows
| For the nine months ended | ||||||||||||
| June 30, 2020 | ||||||||||||
| Previously reported | Adjustments | Adjusted | ||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Depreciation and amortization | $ | $ | ( | ) | $ | |||||||
| Net cash used by operating activities | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Effect of currency translation | $ | $ | $ | |||||||||
On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions.
In March 2021, 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 this reporting period. The gain of $
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, 2020, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
| 13 |
Recently Issued Accounting Standards
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.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”). The update provides optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting caused by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020, through December 31, 2022. The Company adopted this guidance in the second quarter of 2020. The adoption of this guidance had no impact on the Company’s Condensed Consolidated Financial Statements or the related disclosures.
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 nine months ended June 30, 2021, and 2020, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:
| For the three months ended | For the nine months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Warrants to purchase shares | ||||||||||||||||
| Options | ||||||||||||||||
NOTE 4 – SEGMENT INFORMATION
The
Company reports and evaluates financial information for
| 14 |
The following tables summarize the Company’s segment information:
| For the three months ended | For the nine months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues from external customers | ||||||||||||||||
| Advanced Technologies | $ | $ | $ | $ | ||||||||||||
| Industrial Services | $ | |||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
| Gross profit | ||||||||||||||||
| Advanced Technologies | $ | $ | $ | $ | ||||||||||||
| Industrial Services | ||||||||||||||||
| Total gross profit | $ | $ | $ | $ | ||||||||||||
| Operating loss | (restated) | (restated) | ||||||||||||||
| Advanced Technologies | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Industrial Services | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other income/(expense) | ||||||||||||||||
| Advanced Technologies | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Industrial Services | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Depreciation and Amortization | (restated) | (restated) | ||||||||||||||
| Advanced Technologies | $ | $ | $ | $ | ||||||||||||
| Industrial Services | ||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| September 30, | ||||||||
| June 30, | 2020 | |||||||
| 2020 | (restated) | |||||||
| Identifiable Assets | ||||||||
| Advanced Technologies | $ | $ | ||||||
| Industrial Services | ||||||||
| Discontinued operations | ||||||||
| Total Assets | $ | $ | ||||||
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.
| 15 |
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, 2021, are as follows.
| Quoted Prices in Active | Significant | |||||||||||||||
| Markets for | Other | Significant | Balance | |||||||||||||
| Identical | Observable | Unobservable | as of | |||||||||||||
| Assets | Inputs | Inputs | June 30, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2021 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | $ | $ | $ | ||||||||||||
| Investment in MasterpieceVR | $ | $ | ||||||||||||||
| (included in Other assets) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
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 $
NOTE 7 – ACCOUNTS RECEIVABLE, NET
Accounts receivables, net consist of the following:
| June 30, | +September 30, | |||||||
| 2021 | 2020 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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.
| 16 |
NOTE 8 – INVENTORY, NET
Inventory, net, consist of the following:
| June 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less: Allowance for inventory obsolescence | ( | ) | ( | ) | ||||
| Inventory –net of allowance for inventory obsolescence | $ | $ | ||||||
NOTE 9 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
| June 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| (restated) | ||||||||
| Land | $ | $ | ||||||
| Building and leasehold improvements | ||||||||
| Furniture and office equipment | ||||||||
| Computers and software | ||||||||
| Trade show display | ||||||||
| Machinery and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and nine months ended June 30, 2021, and 2020 were $
NOTE 10 – LEASES
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 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. |
| 17 |
The
Company entered into a financing lease for a single vehicle in the Industrial services segment with a term of
Finance and operating lease liabilities consist of the following:
| June 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| Lease liabilities - current | ||||||||
| Finance leases | $ | $ | ||||||
| Operating leases | ||||||||
| Lease liabilities - net of current portion | ||||||||
| Finance leases | $ | $ | ||||||
| Operating leases | ||||||||
| $ | $ | |||||||
A reconciliation of undiscounted cash flows to finance and operating lease liabilities recognized in the condensed consolidated balance sheet at June 30, 2021, is set forth below:
| Years ending September 30, | Finance leases | Operating Leases | Total | |||||||||
| 2021 | ||||||||||||
| 2022 | ||||||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 & Thereafter | ||||||||||||
| Undiscounted lease payments | ||||||||||||
| Amount representing interest | ( | ) | ( | ) | ||||||||
| Discounted lease payments | $ | $ | $ | |||||||||
| 18 |
Additional disclosures of lease data are set forth below:
| Nine months ended | ||||||||
| June 30, 2021 | March 31, 2020 | |||||||
| Lease costs: | ||||||||
| Finance lease costs: | ||||||||
| Depreciation of finance lease assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Operating lease costs: | ||||||||
| Amortization of right-of-use assets | ||||||||
| Interest on lease liabilities | ||||||||
| Total lease cost | $ | $ | ||||||
| Other information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating leases | $ | $ | ||||||
| Finance leases | ||||||||
| $ | $ | |||||||
| Weighted-average remaining lease term - finance leases (months) | ||||||||
| Weighted-average remaining lease term - operating leases (months) | ||||||||
| Weighted-average discount rate - finance leases | % | % | ||||||
| Weighted-average discount rate - operating leases | % | % | ||||||
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 – PREPAID AND OTHER CURRENT ASSETS
On
June 30, 2021, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $
NOTE 12 - OTHER ASSETS
As
of June 30, 2021, the Company had other assets of $
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, is President, for total consideration of $
Please see Note 2 for further transactions relating to Aron Govil.
| 19 |
NOTE 14 – LINES OF CREDIT AND LONG-TERM LIABILITIES
Lines of credit
The
Company currently has a line of credit with Fulton Bank for $
Loans payable to bank
On
December15, 2015, the Company acquired a loan from Fulton Bank in the amount of $
On
December15, 2015, the Company acquired a loan from Fulton Bank in the amount of $
On
May 1, 2018, the Company acquired a loan from Fulton Bank in the amount of $
On
January 28, 2020, the Company acquired a loan from Fulton Bank in the amount of $
Notes payable
On
December 23, 2019, the Company, issued a note payable to an independent private lender in the amount of $
On
April 24, 2020, the Company, issued a note payable to an independent private lender in the amount of $
On
September 30, 2020, the Company, issued a note payable to an independent private lender in the amount of $
On
March 3, 2020, Vicon, a subsidiary of the Company amended the $
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 $
| 20 |
Paycheck Protection Program Loans
In
April and May of 2020, the Company and its subsidiaries applied for and were granted $
On
January 24, 2021, and April 17, 2021, subsidiaries of the company received additional $
NOTE 15 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue shares of Preferred Stock, $ par value. As of June 30, 2021, and September 30, 2020, there were and shares issued and outstanding, respectively.
Series 1 Preferred Stock
On March 30, 2020, the Company amended the Certificate of Designation (the “Amended Certificate of Designation”) for our Series 1 Preferred Stock (the “Series 1 Stock”). The Amended Certificate of Designation increased the number of authorized preferred shares under the designation for our Series 1 Preferred Stock from shares to shares.
For the nine months ended June 30, 2021, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock.
During the nine-month period ended June 30, 2021, the Company retired shares of Series 1 Preferred Stock surrendered by Aron Govil as part of the settlement agreement (see Note 2).
As of June 30, 2021, and September 30, 2020, there were and shares of Series 1 Preferred Stock issued and outstanding, respectively.
Series A Preferred stock
During the nine-month period ended June 30, 2021, the Company retired shares of Series A Preferred Stock surrendered by Aron Govil as part of the settlement agreement (see Note 2).
As of June 30, 2021, and September 30, 2020, there were and shares of Series A Preferred Stock issued and 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 $.
| 21 |
During the nine-month period ended June 30, 2021, the Company retired shares of Series C Preferred Stock surrendered by Aron Govil as part of the settlement agreement (see Note 2).
As of June 30, 2021, and September 30, 2020, there were and shares of Series C Preferred Stock issued and outstanding, respectively.
Common Stock
The Company is authorized to issue shares of common stock, $ par value. As of June 30, 2021, there were shares issued and outstanding and at September 30, 2020, there were shares issued and outstanding.
During
the nine months ended June 30, shares of the Company’s common stock have been issued to satisfy $
Shares Surrendered in Settlement
In March 2021, 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.
For the nine months ended June 30, 2021, and 2020, the Company recognized $ and $1 of share-based compensation expense on its outstanding options, respectively. As of June 30, 2021, $ of unrecognized share-based compensation expense is expected to be recognized over a period of years. Future compensation amounts will be adjusted for any change in estimated forfeitures.
NOTE 17 – COMMITMENTS AND CONTINGENCIES
The
Company has moved its corporate activities to New York City with a month-to-month lease of
The
Company’s IS segment owns approximately
The
Company’s AT segment leases (i) approximately
NOTE 18 - SUBSEQUENT EVENTS
Cemtrex has evaluated subsequent events up to the date the condensed consolidated financial statements were issued. Cemtrex concluded that the following subsequent events have occurred and require recognition or disclosure in the condensed consolidated financial statements.
In
July of 2021, the Company issued
| 22 |
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.
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 2018, the Company made a strategic decision to exit its Electronics Manufacturing group by selling all companies in that business segment on August 15, 2019. Accordingly, the Company has reported the results of the Electronics Manufacturing business as discontinued operations in the Consolidated Statements of Operations and in the Consolidated Balance Sheets. These changes have been applied for all periods presented. During fiscal 2019, the Company also reached a strategic decision to exit the environmental products business, which was part of the Industrial Services Segment.
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) and Smart Devices, such as the SmartDesk. Through the Company’s advanced engineering and product design, the Company delivers Virtual Reality (VR) and Augmented Reality (AR) solutions that provide higher productivity, progressive design and impactful experiences for consumer products, and various commercial and industrial applications. The Company is in the process of developing its own virtual reality applications for commercialization over the next couple years.
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 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 cutting edge, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
| 23 |
Industrial Services (IS)
Cemtrex’s IS segment, offers single-source expertise and services for rigging, millwrighting, in plant maintenance, equipment erection, relocation, and disassembly to diversified customers. We install high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals, among others. We are a leading provider of reliability-driven maintenance and contracting solutions for the machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.
Significant Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.
Certain of our accounting policies are deemed “significant”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our significant accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2020.
Results of Operations - For the three months ending June 30, 2021, and 2020
Total revenue for the three months ended June 30, 2021, and 2020 was $10,326,431 and $8,440,867, respectively, an increase of $1,885,564, or 22%. Loss from operations for the three months ended June 30, 2021, was $2,300,269 compared to $2,399,802 for the three months ended June 30, 2020, a decrease on the loss of $99,533, or 4%. Total revenue for the quarter increased, as compared to total revenue in the same period last year, due to shutdowns and limited operations of businesses due to the COVID-19 crisis. Loss from operations decreased due to increased revenues as a result of the COVID-19 crisis during the same period last year.
Revenues
Our Advanced Technologies segment revenues for the three months ended June 30, 2021, increased by $868,534 or 17% to $5,845,958 from $4,977,424 for the three months ended June 30, 2020. This increase is mainly due to an improvement in economic climate from the impact of the COVID-19 crisis during the same period last year.
Our Industrial Services segment revenues for the three months ended June 30, 2021, increased by $1,017,030 or 29%, to $4,480,473 from $3,463,443 for the three months ended June 30, 2020. This increase is mainly due to an improvement in economic climate from the impact of the COVID-19 crisis during the same period last year.
Gross Profit
Gross Profit for the three months ended June 30, 2021, was $4,127,716 or 40% of revenues as compared to gross profit of $3,279,852 or 39% of revenues for the three months ended June 30, 2020. Gross profit increased in the three months ended June 30, 2021, compared to the three months ended June 30, 2020, due to increased revenues. The Company’s gross profit margins vary from product to product and from customer to customer.
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General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2021, increased $322,301 or 6% to $5,670,019 from $5,347,718 for the three months ended June 30, 2031. General and administrative expenses as a percentage of revenue was 55% and 63% of revenues for the three-month periods ended June 30, 2021, and 2020. The decrease in General and Administrative Expenses as a percentage of revenue is the increase in revenues from the same quarter last year and the increase on a dollar per dollar basis is the result of increased legal, travel, marketing and sales expenses.
Research and Development Expenses
Research and Development expenses for the three months ended June 30, 2021, was $757,966 compared to $331,936 for the three months ended June 30, 2020. Research and Development expenses are primarily related to the Advanced Technologies 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)
Other income/(expense) for the third quarter of fiscal 2021, was $3,468,649 as compared to $(1,823,967) for the third quarter of fiscal 2020. Other income/(expense) for the three months ended June 30, 2021, included the following one-time items (i) other income resulting from the forgiveness of our PPP loans of $3,349,700. Additionally, the company had realized and unrealized gains on marketable securities of $538,281.
Provision for Income Taxes
During the third quarter of fiscal 2021, the Company recorded an income tax provision of $40,759 compared to $7,658 for the third quarter of fiscal 2020. 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. shareholders
The Company had a net income attributable to Cemtrex, Inc. shareholders of $1,098,013, or 11% of revenues, for the three-month period ended June 30, 2021, as compared to a net loss attributable to Cemtrex, Inc. shareholders of $4,195,676 or 50% of revenues, for the three months ended June 30, 2020. Net income/(loss) attributable to Cemtrex, Inc. shareholders increased in the third quarter as compared to the same period last year was primarily due to other income items mentioned above.
Results of Operations - For the nine months ending June 30, 2021, and 2020
Total revenue for the nine months ended June 30, 2021, and 2020 was $28,422,892 and $32,774,797, respectively, a decrease of $4,351,905, or 13%. Loss from operations for the nine months ended June 30, 2021, was $6,308,818 compared to $2,519,212 for the nine months ended June 30, 2020, an increase on the loss of $3,789,606, or 150%. Total revenue for the period decreased, as compared to total revenue in the same period last year, due to shutdowns and limited operations of businesses due to the COVID-19 crisis during the first two quarters of fiscal year 2021. Loss from operations increased due to decreased revenues due to shutdowns and limited operations of businesses due to the COVID-19 crisis during the first two quarters of fiscal year 2021.
Revenues
Our Advanced Technologies segment revenues for the nine months ended June 30, 2021, decreased by $2,382,816 or 13% to $16,006,241 from $18,389,057 for the nine months ended June 30, 2020. This decrease is mainly due to shutdowns and limited operations of businesses due to the COVID-19 crisis during the first two quarters of fiscal year 2021.
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Our Industrial Services segment revenues for the nine months ended June 30, 2021, decreased by $1,969,089 or 14%, to $12,416,651 from $14,385,740 for the nine months ended June 30, 2020. This decrease is mainly due to shutdowns and limited operations of businesses due to the COVID-19 crisis during the first two quarters of fiscal year 2021.
Gross Profit
Gross Profit for the nine months ended June 30, 2021, was $12,062,070 or 42% of revenues as compared to gross profit of $13,974,442 or 43% of revenues for the nine months ended June 30, 2020. Gross profit decreased in the nine months ended June 30, 2021, compared to the nine months ended June 30, 2020, due to lower revenues. The Company’s gross profit margins vary from product to product and from customer to customer.
General and Administrative Expenses
General and administrative expenses for the nine months ended June 30, 2021, increased $957,001 or 6% to $16,337,200 from $15,380,199 for the nine months ended June 30, 2020. General and administrative expenses as a percentage of revenue was 57% and 47% of revenues for the nine-month periods ended June 30, 2021, and 2020. The increase in General and Administrative Expenses as a percentage of revenue is the reduction in revenues from the same period last year and the increase on a dollar per dollar basis is the result of increased personnel, legal and accounting fees, and marketing and sales expenses.
Research and Development Expenses
Research and Development expenses for the nine months ended June 30, 2021, was $2,033,688 compared to $1,113,455 for the nine months ended June 30, 2020. Research and Development expenses are primarily related to the Advanced Technologies 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)
Other income/(expense) for the first three quarters of fiscal 2021 was $8,315,729 as compared to $(2,982,670) for the first three quarters of fiscal 2020. Other income/(expense) for the nine months ended June 30, 2021, included the following one-time items (i) the settlement with Aron Govil (see Note 2), generated other income of $3,674,165, (ii) employee retention credits of $736,899 (iii) other income resulting from the forgiveness of our PPP loans of $3,349,700. Additionally, the company had realized and unrealized gains on marketable securities of $2,407,647.
Provision for Income Taxes
During the first three quarters of fiscal 2021 the Company recorded an income tax provision of $168,190 compared to $197,201 for the first three quarters of fiscal 2020. 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. shareholders
The Company had a net income attributable to Cemtrex, Inc. shareholders of $1,859,534, or 7% of revenues, for the nine-month period ended June 30, 2021, as compared to a net loss attributable to Cemtrex, Inc. shareholders of $5,850,395 or 18% of revenues, for the nine months ended June 30, 2020. Net income/(loss) attributable to Cemtrex, Inc. shareholders increased in the first three quarters as compared to the same period last year was primarily due to other income items mentioned above.
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Effects of Inflation
The Company’s business and operations have not been materially affected by inflation during the periods for which financial information is presented.
Liquidity and Capital Resources
Working capital was $18,176,331 at June 30, 2021, compared to $23,285,122 at September 30, 2020. This includes cash and equivalents and restricted cash of $14,570,345 at June 30, 2021, and $21,072,859 at September 30, 2020, respectively. The decrease in working capital was primarily due to the reduction of the Company’s cash and equivalents, and trade receivables during the first and second quarters of fiscal year 2021.
Accounts receivable decreased $1,452,581 or 22% to $5,234,216 at June 30, 2021, from $6,686,797 at September 30, 2020. The decrease in accounts receivable is attributable to lower revenues in the first three quarters of fiscal year 2021 due to the COVID-19 crisis.
Inventories increased $1,875,591 or 28% to $8,669,397 at June 30, 2021, from $6,793,806 at September 30, 2020. The increase inventories is attributable to the purchase of inventories for new products the Company plans to ship in the future.
Operating activities used $6,178,550 cash for the nine months ended June 30, 2021, compared to using $3,385,727 cash for the nine months ended June 30, 2020. The decrease in operating cash flows was primarily due to the effect of the settlement agreement with Aron Govil and the discharge of the Company’s PPP loans.
Investment activities provided $154,326 of cash for the nine months ended June 30, 2021, compared to using cash of $5,990,926 during the nine-month period ended June 30, 2020. Investing activities for the first quarter of fiscal year 2021 were driven by the Company’s investment in Virtual Driver Interactive, MasterpieceVR Software, purchase of fixed assets, and marketable securities transactions.
Financing activities used $180,219 of cash in the nine-month period ended June 30, 2021, as compared to providing cash of $20,663,535 in the nine-month period ended June 30, 2020. Financing activities were primarily driven by payments on bank loans and notes payable and proceeds from the second round of Paycheck Protection Program loans.
We believe that our cash on hand and cash generated by operations is sufficient to meet the capital demands of our current operations during the 2021 fiscal year (ending September 30, 2021). Any major increases in sales, particularly in new products, may require substantial capital investment. Failure to obtain sufficient capital could materially adversely impact our growth potential.
Overall, there is no guarantee that cash flow from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet our expansion goals and working capital needs.
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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, 2021. Based on their evaluation, our management has concluded that as of June 30, 2021, 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 personal resulted in the Company lacking entity level controls around the review of period-end reporting processes, accounting policies and public disclosures. This deficiency is common in small companies, similar to us, 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, 2021, 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, the Board of Directors has assigned a priority to the short-term and long-term improvement of our internal control over financial reporting. Our Board of Directors will work with management to continuously review controls and procedures to identified deficiencies and implement remediation within our internal controls over financial reporting and our disclosure controls and procedures.
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 steps to improve its internal controls by obtaining additional accounting personnel.
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.
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Part II Other Information
Item 1. Legal Proceedings.
NONE.
Item 1A. Risk Factors
See Risk Factors included in our Annual Report on Form 10-K for 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the nine months ended June 30, 2020, the Company issued an aggregate of 1,088,924 shares of common stock in exchange for aggregate consideration of $1,707,328, which was used for working capital and research and development. Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended.
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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 | Incorporated by reference from Form S-8 filed on May 1, 20120 |
| 6 | Incorporated by reference from Form 8-K filed on June 12, 2019. |
| 7 | Incorporated by reference from Form 8-K/A filed on November 24, 2017. |
| 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 | Intentionally left blank |
| 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. |
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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: August 16, 2021 | By: | /s/ Saagar Govil | |
| Saagar Govil | |||
| Chief Executive Officer | |||
| Dated: August 16, 2021 | /s/ Christopher C. Moore . | ||
| Christopher C. Moore | |||
| Chief Financial Officer and Principal Financial Officer | |||
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