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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2021

 

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.

 

Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

☐ Yes ☒ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 13, 2021, the issuer had 20,782,194 shares of common stock issued and outstanding.

 

 

 

 

 

 

Table of Contents

 

CEMTREX, INC. AND SUBSIDIARIES

 

INDEX

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and September 30, 2020 (Restated) 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three months ended June 30, 2021 (Unaudited) and June 30, 2020 (Restated) 4
     
  Consolidated Statement of Stockholders’ Equity for the nine months ended June 30, 2021 (Unaudited)/(Restated) 5
     
  Consolidated Statement of Stockholders’ Equity for the nine months ended June 30, 2020 (Unaudited)/(Restated) 6
     
  Condensed Consolidated Statements of Cash Flow for the nine months ended June 30, 2021 (Unaudited) and June 30, 2020 (Restated) 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
     
Item 4. Controls and Procedures 28
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 29
     
Item 1A Risk Factors 29
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
     
Item 6. Exhibits 30
     
SIGNATURES 31

 

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  $12,879,278   $19,490,061 
Restricted cash   1,690,873    1,582,798 
Short-term investments   452,175    887,746 
Trade receivables, net   5,234,216    6,686,797 
Trade receivables - related party   1,505,789    1,432,209 
Inventory –net of allowance for inventory obsolescence   8,669,397    6,793,806 
Prepaid expenses and other assets   2,164,367    1,188,317 
Total current assets   32,596,095    38,061,734 
           
Property and equipment, net   7,236,755    6,961,751 
Right-of-use assets   3,098,523    2,728,380 
Assets held for sale   8,323,321    8,323,321 
Goodwill   5,886,096    4,370,894 
Other   1,094,429    744,207 
Total Assets  $58,235,219   $61,190,287 
           
Liabilities & Stockholders’ Equity (Deficit)          
Current liabilities          
Accounts payable  $2,888,144   $2,857,817 
Short-term liabilities   6,381,047    7,034,510 
Lease liabilities - short-term   840,016    721,036 
Deposits from customers   39,227    29,660 
Accrued expenses   2,476,812    2,392,487 
Deferred revenue   1,794,187    1,651,784 
Accrued income taxes   331    89,318 
Total current liabilities   14,419,764    14,776,612 
           
Long-term liabilities          
Loans payable to bank   1,046,504    1,871,201 
Long-term lease liabilities   2,261,148    2,027,406 
Notes payable   3,079,743    6,029,999 
Mortgage payable   2,282,409    2,355,542 
Other long-term liabilities   1,078,752    1,063,733 
Paycheck Protection Program Loans   2,871,161    2,169,437 
Deferred Revenue - long-term   449,563    467,329 
Total long-term liabilities   13,069,280    15,984,647 
           
Total liabilities   27,489,044    30,761,259 
           
Commitments and contingencies   -    - 
           
Shareholders’ equity          
Preferred stock , $0.001 par value, 10,000,000 shares authorized,          
Series 1, 3,000,000 shares authorized, 1,885,151 shares issued and outstanding as of June 30, 2021 and 2,156,784 shares issued and outstanding as of September 30, 2020 (liquidation value of $10 per share)   1,885    2,157 
Series A, 1,000,000 shares authorized, zero shares issued and outstanding at June 30, 2021 and 1,000,000 shares issued and outstanding at September 30, 2020   -    1,000 
Series C, 100,000 shares authorized, 50,000 shares issued and outstanding at June 30, 2021 and 100,000 shares issued and outstanding at September 30, 2020   50    100 
Common stock, $0.001 par value, 50,000,000 shares authorized, 18,711,463 shares issued and outstanding at June 30, 2021 and 17,622,539 shares issued and outstanding at September 30, 2020   18,711    17,623 
Additional paid-in capital   58,846,576    60,221,766 
Retained earnings (accumulated deficit)   (30,660,550)   (32,520,084)
Treasury stock at cost   (148,291)   (148,291)
Accumulated other comprehensive income (loss)   1,624,673    1,777,112 
Total Cemtrex stockholders’ equity   29,683,054    29,351,383 
Non-controlling interest   1,063,121    1,077,645 
Total liabilities and shareholders’ equity  $58,235,219   $61,190,287 

 

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   10,326,431    8,440,867    28,422,892    32,774,797 
Cost of revenues   6,198,715    5,161,015    16,360,822    18,800,355 
Gross profit   4,127,716    3,279,852    12,062,070    13,974,442 
                     
Operating expenses                    
General and administrative   5,670,019    5,347,718    16,337,200    15,380,199 
Research and development   757,966    331,936    2,033,688    1,113,455 
Total operating expenses   6,427,985    5,679,654    18,370,888    16,493,654 
Operating income/(loss)   (2,300,269)   (2,399,802)   (6,308,818)   (2,519,212)
                     
Other income/(expense)                    
Other income/(expense)   3,901,658    158,134    6,532,590    830,251 
Settlement Agreement - Related Party   -    -    3,674,165    - 
Interest Expense   (433,009)   (1,982,101)   (1,891,026)   (3,812,921)
Total other income/(expense), net   3,468,649    (1,823,967)   8,315,729    (2,982,670)
                     
Net loss before income taxes   1,168,380    (4,223,769)   2,006,911    (5,501,882)
Income tax benefit/(expense)   (40,759)   (7,658)   (168,190)   (197,201)
Net income/(loss)   1,127,621    (4,231,427)   1,838,721    (5,699,083)
                     
Less income in noncontrolling interest   29,608    (35,751)   (20,813)   151,312 
Net income/(loss) attributable to Cemtrex, Inc. shareholders  $1,098,013   $(4,195,676)  $1,859,534   $(5,850,395)
                     
Net income/(loss)  $1,127,621   $(4,231,427)  $1,838,721   $(5,699,083)
Other comprehensive income/(loss)                    
Foreign currency translation gain/(loss)   (193,554)   154,443    (234,045)   161,460 
Defined benefit plan actuarial gain/(loss)   -    -    87,895    - 
Comprehensive income/(loss)   934,067    (4,076,984)   1,692,571    (5,537,623)
Less comprehensive income/(loss) attributable to noncontrolling interest   (35,731)   41,266    14,524    (118,623)
                     
Comprehensive income/(loss) attributable to Cemtrex, Inc. shareholders  $969,798   $(4,118,250)  $1,678,047   $(5,419,000)
                     
Income/(loss) Per Share-Basic  $0.06   $(0.38)  $0.10   $(0.82)
Income/(loss) Per Share-Diluted  $0.06   $(0.38)  $0.10   $(0.82)
                     
Weighted Average Number of Shares-Basic   18,711,463    10,933,926    18,368,274    7,161,785 
Weighted Average Number of Shares-Diluted   18,711,463    10,933,926    18,368,274    7,161,785 

 

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)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit)   At cost   Income(loss)   Equity   interest 
   Preferred Stock Series 1  

Preferred Stock

Series A

   Preferred Stock Series C   Common Stock         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   2,156,784   $2,157    1,000,000   $1,000    100,000   $100    17,622,539   $17,623   $63,313,336   $(33,172,690)  $(148,291)  $853,643   $ 30,866,878   $1,077,645 
Adjustment                                           (3,091,570)   652,606         923,469    (1,515,495)     
Balance at September 30, 2020, as restated   2,156,784   $2,157    1,000,000   $1,000    100,000   $100    17,622,539   $17,623   $60,221,766   $(32,520,084)  $(148,291)  $1,777,112   $29,351,383   $1,077,645 
Foreign currency translation gain/(loss)                                                          37,864    37,864      
                                                                       
Share-based compensation             -     -     -     -               16,071         -          16,071      
Shares issued to pay notes payable                                 345,638    345    407,507                   407,852      
Dividends paid in Series 1 preferred shares   108,169    108                                  (108)                  -      
Net income/(loss) attributable to noncontrolling interest                                                               -    (40,247)
Comprehensive income/(loss) attributable to noncontrolling interest                                                               -    9,617 
Net loss                                                (1,692,611)             (1,692,611)     
Balance at December 31, 2020   2,264,953   $2,265    1,000,000   $1,000    100,000   $100    17,968,177   $17,968   $60,645,236   $(34,212,695)  $(148,291)  $1,814,976   $28,120,559   $1,047,015 
Foreign currency translation gain/(loss)                                                          (78,521)   (78,521)     
Defined benefit plan actuarial gain/(loss)                                                          87,895    87,895      
Share-based compensation                                           49,246                   49,246      
Shares issued to pay notes payable                                 743,286    743    1,298,733         -          1,299,476      
Income in noncontrolling interest                                                                    (19,625)
Shares and options surrendered in settelment agreement   (469,949)   (470)   (1,000,000.00)   (1,000)   (50,000)   (50)             (3,672,645)                  (3,674,165)     
Net income                                                2,454,132              2,454,132      
Balance at March 31, 2021   1,795,004   $1,795    -   $-    50,000   $50    18,711,463   $18,711   $58,320,570   $(31,758,563)  $(148,291)  $1,824,350   $28,258,622   $1,027,390 
Foreign currency translation gain/(loss)                                                          (199,677)   (199,677)     
Dividends paid in Series 1 preferred shares   90,147    90    -     -     -     -     -     -     (90)        -          -      
Share-based compensation                                           45,587                   45,587      
Shares granted to pay notes payable                                           480,509                   480,509      
Income in noncontrolling interest                                                               -    35,731 
                                                                -      
Net income                                                1,098,013              1,098,013      
Balance at June 30, 2021   1,885,151   $1,885    -   $-    50,000   $50    18,711,463   $18,711   $58,846,576   $(30,660,550)  $(148,291)  $1,624,673   $29,683,054   $1,063,121 

 

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   2,110,718   $2,111    1,000,000   $1,000    -   $-    3,962,790   $3,963   $39,337,117   $(23,676,887)  $-   $1,791,153   $   17,458,457   $885,874 
Foreign currency translation gain                                                          582,156    582,156      
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    -     -                         (106)        -          -      
Net income/(loss) attributable to noncontrolling interest                                                               -    194,911 
Comprehensive income/(loss) attributable to noncontrolling interest                                                               -    (18,429)
Net loss                                                (55,618)             (55,618)     
Balance at December 31, 2019   2,216,683   $2,217    1,000,000   $1,000    100,000   $100    4,424,583   $4,424   $39,973,394   $(23,732,505)  $-   $2,373,309   $18,621,939   $1,062,356 
                                                                       
Foreign currency translation gain                                                          (748,929)   (748,929)     
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      
Shares issued for services                                 150,000    150    170,850                   171,000      
Purchase of treasury stock                                                     (190,483)        (190,483)     
Noncontrolling interest                                                               -    (16,593)
Net loss                                                (1,599,101)             (1,599,101)     
Balance at March 31, 2020   2,216,683   $2,217    1,000,000   $1,000    100,000   $100    7,939,628   $7,940   $44,828,348   $(25,331,606)  $(190,483)  $1,624,380   $20,941,896   $1,045,763 
Foreign currency translation gain                                                          154,443    154,443      
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                                                               -    (41,266)
Net loss                                                (4,195,676)             (4,195,676)     
Balance at June 30, 2020   2,216,683   $2,217    1,000,000   $1,000    100,000   $100    16,263,715   $16,264   $58,476,304   $(29,527,282)  $(190,483)  $1,778,823   $30,556,943   $1,004,497 

 

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)  $1,838,721   $(5,699,083)
           
Adjustments to reconcile net loss to net cash provided/(used) by operating activities:          
Depreciation and amortization   972,186    1,343,207 
Gain on disposal of property and equipment   18,583    457 
Amortization of right-of-use assets   653,175    352,691 
Change in allowance for doubtful accounts   (161,101)   126 
Share-based compansation   110,904    167,312 
Income tax expense/ (benefit)   168,190    (197,201)
Interest expense paid in equity shares   818,348    2,505,924 
Accrued interest on notes payable   64,748    308,748 
Amortization of original issue discounts on notes payable   575,000    757,278 
Gain on marketable securities   (2,407,841)   (607,103)
Settlement Agreement - Related Party   (3,674,165)   - 
Discarge of Paycheck Protection Program Loans   (3,349,700)   - 
           
Changes in operating assets and liabilities net of effects from acquisition          
of subsidiaries:          
Accounts receivable   1,613,682    1,654,383 
Accounts receivable - related party   (78,594)   5,510 
Inventory   (1,875,591)   (1,384,453)
Prepaid expenses and other curent asstets   (976,050)   (514,580)
Other assets   149,778    (1,017,337)
Other liabilities   15,019    (117,667)
Accounts payable   30,327    (1,205,851)
Operating lease liabilities   (650,535)   (296,892)
Deposits from customers   9,567    2,003 
Accrued expenses   (78,851)   383,230 
Deferred revenue   124,637    (99,354)
Income taxes payable   (88,987)   272,925 
Net cash used by operating activities   (6,178,550)   (3,385,727)
           
Cash Flows from Investing Activities          
Purchase of property and equipment   (1,113,658)   (4,541,537)
Investment in Virtual Driver Interactive   (1,075,428)   - 
Investment in MasterpieceVR   (500,000)   - 
Investment in related party        (500,000)
Proceeds from sale of marketable securities   9,134,159    22,720,132 
Purchase of marketable securities   (6,290,747)   (23,479,038)
Purchases of treasury stock   -    (190,483)
Note Receivable - Related party   -    - 
Net cash used by investing activities   154,326    (5,990,926)
           
Cash Flows from Financing Activities          
Proceeds from notes payable   -    4,485,000 
Payments on notes payable   (2,145,257)   (726,640)
Proceeds on bank loans   -    5,947,101 
Payments on bank loans   (957,186)   (224,196)
Proceeds from Paycheck Protection Program Loans   2,942,285    - 
Proceeds from securities purchase agreements   -    12,462,648 
Payments on capital lease liabilities   (20,061)   (13,838)
Expenses on securities purchase agreements   -    (840,728)
Revolving line of credit   -    (425,812)
Net cash provided/(used) by financing activities   (180,219)   20,663,535 
           
Effect of currency translation   (298,265)   128,771 
Net increase in cash, cash equivalents, and restricted cash   (6,204,443)   11,286,882 
Cash, cash equivalents, and restricted cash at beginning of period   21,072,859    2,858,085 
Cash, cash equivalents, and restricted cash at end of period   14,570,151   $14,273,738 
           
Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash          
Cash and equivalents  $12,879,278   $12,939,493 
Restricted cash   1,690,873    1,334,245 
Total cash, cash equivalents, and restricted cash  $14,570,151   $14,273,738 

 

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  $432,930   $240,971 
           
Cash paid during the period for income taxes  $88,987   $75,724 
           
Supplemental Schedule of Non-Cash Investing and Financing Activities          
Investment in Virtual Driver Interactive  $439,774   $- 
Stock issued to pay for products and/or services  $-   $428,538 
Stock issued to pay notes payable  $2,187,837   $6,933,924 

 

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 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.

 

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 $1,339,774 plus contingent consideration of $175,428.

 

For over 10 years, VDI has been known for its effective and engaging driver training systems, designed for 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 $900,000 in cash and issued a Note payable in the amount of $439,774. This note carries interest of 5% and is payable in two installments of $239,774 plus accumulated interest on October 26, 2021, and $200,000 plus accumulated interest on October 26, 2022. Additionally, the Company paid contingent consideration of $175,428 in May 2021. There is no further contingent consideration specified in the purchase agreement. The Company has accounted for this acquisition as a business combination and is in the process of calculating the allocation of purchase price. All amounts paid have been included in goodwill in the accompanying condensed consolidated balance sheet.

 

Strategic Investment

 

On November 13, 2020, Cemtrex made a $500,000 investment via a simple agreement for future equity(“SAFE”) in MasterpieceVR. The SAFE provides that the Company will automatically receive shares of the entity based on the conversion rate of future equity rounds up to a valuation cap, as defined. MasterpieceVR is a software company that is developing software for content creation using virtual reality. The investment is included in other assets in the accompanying balance sheet and the Company accounts for this investment using the fair value method. No impairment has been recorded for the three and nine months ended June 30, 2021.

 

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.

 

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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 $7,100,000 and occurred in fiscal year 2017 in the amount of $5,600,000 and in fiscal year 2018 in the amount of $1,500,000. Cemtrex did not find any other such transfers during this period or thereafter, upon further review of the Company’s records.j

 

Upon the Company’s investigation into this matter, the Company has determined that there were inaccuracies in the Company’s financial statements. The financials for the periods 2017 and 2018 were incorrect corresponding to the amounts that were incorrectly accounted for, and subsequent years were affected by the roll forward effects of these entries. The Company found unsupported advertising expenses in the amount of approximately $400,000 on Cemtrex Inc’s income statement for fiscal year 2018 and found that approximately $5,700,000 of intangible assets and $975,000 of research and development expenses, as translated at from Indian Rupee at the time, were recorded on Cemtrex India’s financial statements in fiscal year 2018 and could not be substantiated. The total amount of unsubstantiated transfers recorded by Cemtrex India, and the unsupported advertising expense recorded by Cemtrex, Inc. sums to $7,100,000, corresponding with the total amount in question regarding First Commercial transfers during fiscal years 2017 and 2018.

 

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. In 2017 the operations of the Company were vastly different with both the environmental and circuit board manufacturing segments accounting for approximately 75% of revenues. These businesses are now either sold or discontinued. The current reported 2017 financial statements of the Company do not give an accurate representation of the Company today because only 16% of the $120M business operations are still a part of current operations.

 

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  $9,558,936   $(2,597,185)                      $6,961,751
Series 1 preferred stock dividends payable  $1,081,690                  $(1,081,690)       $-
Additional paid-in capital  $63,313,336                  $(3,091,570)       $60,221,766
Retained earnings (accumulated deficit)  $(33,172,690)       $3,579,346   $(7,100,000)  $4,173,260        $(32,520,084)
Accumulated other comprehensive income  $853,643    

 

 

 

 

                  $923,469   $1,777,112

 

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  $(4,454,617)  $258,941   $(4,195,676)
Foreign currency translation gain/(loss)  $310,797   $(156,354)  $154,443 
Loss Per Share-Basic  $(0.41)  $0.02   $(0.38)
Loss Per Share-Diluted  $(0.41)  $0.02   $(0.38)

 

   For the nine months ended 
   June 30, 2020 
   Previously reported   Adjustments   Adjusted 
             
Net loss available to Cemtrex, Inc. shareholders  $(6,658,086)  $807,691   $(5,850,395)
Foreign currency translation gain  $153,420   $8,040   $161,460 
Loss Per Share-Basic  $(0.93)  $0.11   $(0.82)
Loss Per Share-Diluted  $(0.93)  $0.11   $(0.82)

 

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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  $(20,067,685)  $(3,609,202)  $(23,676,887)
Net income/(loss)  $(8,744,636)  $2,894,241   $(5,850,395)
Retained earnings (accumulated deficit) at June 30, 2020  $(28,812,321)  $(714,961)  $(29,527,282)
Accumulated other comprehensive income/(loss)at September 30, 2019  $796,004   $995,149   $1,791,153 
Comprehensive income/(loss)  $153,420   $8,040   $161,460 
Accumulated other comprehensive income/(loss) at June 30, 2020  $949,424   $829,399   $1,778,823 
Additional paid-in capital  $60,543,674   $(2,067,370)  $58,476,304 

 

Condensed Consolidated Statements of Cash Flows

 

   For the nine months ended 
   June 30, 2020 
   Previously reported   Adjustments   Adjusted 
             
Net loss  $(6,506,774)  $807,691   $(5,699,083)
Depreciation and amortization  $2,158,938   $(815,731)  $1,343,207 
Net cash used by operating activities  $(3,377,687)  $(8,040)  $(3,385,727)
Effect of currency translation  $120,731   $8,040   $128,771 

 

On February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding these transactions.

 

As part of the Settlement Agreement, Mr. Govil was required to pay the Company consideration with a total value of $7,100,000 (the “Settlement Amount”) by entering into the Agreement. The Settlement Amount was satisfied in a combination of Mr. Govil forfeiting certain Preferred Stock and outstanding options and executing a secured note in the amount of $1,533,280. The Independent Board of Directors in coordination with Management concluded the settlement represented fair value.

 

In March 2021, Mr. Govil returned to the Company 1,000,000 shares of Series A Preferred Stock, 50,000 Shares of Series C Preferred Stock, 469,949 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 $3,674,165 is reported as Settlement Agreement - Related Party on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).

 

As discussed above, Mr. Govil also executed a secured promissory note (the “Note”) in the amount of $1,533,280. The Note matures and is due in full in two years and bears interest at 9% per annum and is secured by all of Mr. Govil’s assets. Mr. Govil also agreed to sign an affidavit confessing judgment in the event of a default on the Note. While the Company believes the note is fully collectible, in accordance with ASC 450-30, Gain Contingencies, the Company determined the gain will not be recognized until the note is paid. Accordingly, the note and associated gain is not presented on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).

 

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.

 

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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.

 

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 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   433,965    433,965    433,965    433,965 
Options   1,383,965    1,145,871    1,383,965    1,204,329 

 

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: manufacturing, steel, printing, construction, & petrochemical.

 

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  $5,845,958   $4,977,424   $16,006,241   $18,389,057 
Industrial Services  $4,480,473    3,463,443    12,416,651    14,385,740 
Total revenues  $10,326,431   $8,440,867   $28,422,892   $32,774,797 
                     
Gross profit                    
Advanced Technologies  $2,693,677   $1,837,957   $7,686,875   $8,712,543 
Industrial Services   1,434,039    1,441,895    4,375,195    5,261,899 
Total gross profit  $4,127,716   $3,279,852   $12,062,070   $13,974,442 
                     
Operating loss        (restated)          (restated) 
Advanced Technologies  $(1,650,221)  $(1,595,405)  $(5,185,944)  $(1,686,680)
Industrial Services   (650,048)   (804,397)   (1,122,874)   (832,532)
Total operating loss  $(2,300,269)  $(2,399,802)  $(6,308,818)  $(2,519,212)
                     
Other income/(expense)                    
Advanced Technologies  $4,955,782   $(1,795,637)  $5,666,112   $(2,868,033)
Industrial Services   (1,487,133)   (28,330)   2,649,617    (114,637)
Total other expense  $3,468,649   $(1,823,967)  $8,315,729   $(2,982,670)
                     
Depreciation and Amortization        (restated)         (restated) 
Advanced Technologies  $103,177   $114,151   $308,755   $212,088 
Industrial Services   189,005    358,128    663,431    1,139,159 
Total depreciation and amortization  $292,182   $472,279   $972,186   $1,351,247 

 

      September 30, 
   June 30,   2020 
   2020   (restated) 
Identifiable Assets          
Advanced Technologies  $31,726,862   $36,732,018 
Industrial Services   17,640,536    15,590,448 
Discontinued operations   8,867,821    8,867,821 
Total Assets  $58,235,219   $61,190,287 

 

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.

 

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Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified contractual term, a Level 2 input must be observable for substantially the full term of the asset or liability.

 

Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. Level 3 assets and liabilities include cost method investments. Quantitative information for Level 3 assets and liabilities reviewed at each reporting period includes indicators of significant deterioration in the earnings performance, credit rating, asset quality, business prospects of the investee, and financial indicators of the investee’s ability to continue as a going concern.

 

The Company’s fair value assets at June 30, 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)  $452,175   $-   $-   $452,175 
                     
Investment in MasterpieceVR            $500,000   $500,000 
(included in Other assets)                    
                     
   $452,175   $-   $500,000   $952,175 

 

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 $1,533,458 as of June 30, 2021. Additionally, the Company has a standby letter of credit for deposit on a building lease and payable against. a money market account, the amount of the standby letter of credit is $157,415.

 

NOTE 7 – ACCOUNTS RECEIVABLE, NET

 

Accounts receivables, net consist of the following:

 

   June 30,   +September 30, 
   2021   2020 
Accounts receivable  $5,413,963   $7,027,645 
Allowance for doubtful accounts   (179,747)   (340,848)
Accounts receivables, net, total   $5,234,216   $6,686,797 

 

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.

 

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NOTE 8 – INVENTORY, NET

 

Inventory, net, consist of the following:

 

   June 30,   September 30, 
   2021   2020 
Raw materials  $2,309,734   $3,959,888 
Work in progress   779,929    995,184 
Finished goods   6,751,717    6,413,927 
 Inventory, gross   9,841,380    11,368,999 
           
Less: Allowance for inventory obsolescence   (1,171,983)   (4,575,193)
Inventory –net of allowance for inventory obsolescence  $8,669,397   $6,793,806 

 

NOTE 9 – PROPERTY AND EQUIPMENT

 

Property and equipment are summarized as follows:

 

   June 30,   September 30, 
   2021   2020 
       (restated) 
Land  $790,373   $790,373 
Building and leasehold improvements   3,962,225    3,875,796 
Furniture and office equipment   687,055    621,790 
Computers and software   346,051    264,940 
Trade show display   89,330    89,330 
Machinery and equipment   14,675,127    13,668,263 
    20,550,161    19,310,492 
           
Less: Accumulated depreciation   (13,313,406)   (12,348,741)
Property and equipment, net  $7,236,755   $6,961,751 

 

Depreciation expense for the three and nine months ended June 30, 2021, and 2020 were $292,182 and $972,186, and $472,279 and $1,351,247, respectively.

 

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.

 

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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.

 

The Company entered into a financing lease for a single vehicle in the Industrial services segment with a term of 3 years. The Company enters into operating leases for its facilities in New York, United Kingdom, and India, as well as for vehicles for use in our Industrial Services segment. The operating lease terms range from 2 to 7 years. The Company excluded the renewal option on its applicable facility leases from the calculation of its right-of-use assets and lease liabilities.

 

Finance and operating lease liabilities consist of the following:

 

   June 30,   September 30, 
   2021   2020 
Lease liabilities - current          
Finance leases  $-   $20,061 
Operating leases   840,016    700,975 
    840,016    721,036 
           
Lease liabilities - net of current portion          
Finance leases  $-   $- 
Operating leases   2,261,148    2,027,406 
   $2,261,148   $2,027,406 

 

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   -    236,899    236,899 
2022   -    895,590    895,590 
2023   -    712,413    712,413 
2024   -    576,687    576,687 
2025   -    552,884    552,884 
2026 & Thereafter   -    621,099    621,099 
Undiscounted lease payments   -    3,595,572    3,595,572 
Amount representing interest   -    (494,408)   (494,408)
Discounted lease payments  $-   $3,101,164   $3,101,164 

 

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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  $17,184   $11,456 
Interest on lease liabilities   88    416 
           
Operating lease costs:          
Amortization of right-of-use assets   653,175    275,822 
Interest on lease liabilities   56,927    20,375 
Total lease cost  $727,374   $308,069 
           
Other information:          
Cash paid for amounts included in the measurement of lease liabilities:          
Operating leases  $650,535   $296,892 
Finance leases   28,535    13,838 
   $679,070   $310,730 
           
Weighted-average remaining lease term - finance leases (months)   3    13 
Weighted-average remaining lease term - operating leases (months)   58    73 
           
Weighted-average discount rate - finance leases   3.63%   6.95%
Weighted-average discount rate - operating leases   6.85%   6.98%

 

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 $397,056, other current assets of $1,767,311. On September 30, 2020, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $101,308, and other current assets of $1,087,009.

 

NOTE 12 - OTHER ASSETS

 

As of June 30, 2021, the Company had other assets of $1,094,429 which was comprised of rent security of $248,160, a strategic investment in MasterpieceVR of $500,000, and other assets of $346,269. As of September 30, 2020, the Company had other assets of $744,207 which was comprised of rent security deposits of $294,553 and other assets of $449,654.

 

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 $550,000. As of June 30, 2021, and September 30, 2020, there was $1,515,820 and $1,432,209 in receivables due from Ducon Technologies, Inc., respectively. At June 30, 2021, $500,000 of the balance due is for the sale of Griffin, which was due in February 2021, and the remaining balance are various receivables with various due dates within the next fiscal year. The Company is currently negotiating a payment agreement surrounding all these amounts due.

 

Please see Note 2 for further transactions relating to Aron Govil.

 

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NOTE 14 – LINES OF CREDIT AND LONG-TERM LIABILITIES

 

Lines of credit

 

The Company currently has a line of credit with Fulton Bank for $3,500,000. The line carries an interest of LIBOR plus 2.00% per annum (2.09% as of June 30, 2021). At June 30, 2021, there was no outstanding balance on this line of credit.

 

Loans payable to bank

 

On December15, 2015, the Company acquired a loan from Fulton Bank in the amount of $5,250,000 in order to fund the purchase of Advanced Industrial Services, Inc. $5,000,000 of the proceeds went to direct purchase of AIS. This loan carries interest of LIBOR plus 2.25% per annum (2.34% as of June 30, 2021) and is payable on December 15, 2022. This loan carries loan covenants which the Company was in compliance with as of June 30, 2021.

 

On December15, 2015, the Company acquired a loan from Fulton Bank in the amount of $620,000 in order to fund the operations of Advanced Industrial Services, Inc. This loan carries interest of LIBOR plus 2.00% per annum (2.09% as of June 30, 2021) and was fully paid on December 15, 2020.

 

On May 1, 2018, the Company acquired a loan from Fulton Bank in the amount of $400,000 in order to fund new equipment for Advanced Industrial Services, Inc. This loan carries interest of LIBOR plus 2.00% per annum (2.09% as of June 30, 2021) and is payable on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of June 30, 2021.

 

On January 28, 2020, the Company acquired a loan from Fulton Bank in the amount of $360,000 in order to fund new equipment for Advanced Industrial Services, Inc. This loan carries interest of LIBOR plus 2.25% per annum (2.44% as of June 30, 2021) and is payable on May 1, 2023. This loan carries loan covenants which the Company was in compliance with as of June 30, 2021.

 

Notes payable

 

On December 23, 2019, the Company, issued a note payable to an independent private lender in the amount of $1,725,000. This note carries interest of 8% and matures on June 23, 2021. After deduction of an original issue discount of $225,000 and legal fees of $5,000, the Company received $1,495,000 in cash. This note was satisfied on November 2, 2020.

 

On April 24, 2020, the Company, issued a note payable to an independent private lender in the amount of $1,725,000. This note carries interest of 8% and matures on October 24, 2021. After deduction of an original issue discount of $225,000 and legal fees of $5,000, the Company received $1,495,000 in cash. This note was satisfied on January 21, 2021.

 

On September 30, 2020, the Company, issued a note payable to an independent private lender in the amount of $4,605,000. This note carries interest of 8% and matures on March 30, 2022. After deduction of an original issue discount of 600,000 and legal fees of $5,000, the Company received $4,000,000 in cash.

 

On March 3, 2020, Vicon, a subsidiary of the Company amended the $5,600,000 Term Loan Agreement with NIL Funding Corporation (“NIL”). Upon closing, $500,000 of outstanding borrowings were repaid to NIL, additionally, another $500,000 is to be paid in one year. The Agreement requires monthly payments of accrued interest that began on October 1, 2018. This note carries interest of 8.85% and matures on March 30, 2022. This note carries loan covenants which the Company is in compliance with as of June 30, 2021.

 

Mortgage Payable

 

On January 28, 2020, the Company’s subsidiary, Advanced Industrial Services, Inc., completed the purchase of two buildings for a total purchase price of $3,381,433. The Company paid $905,433 in cash and acquired a mortgage from Fulton Bank in the amount of $2,476,000. This mortgage carries interest of LIBOR plus 2.50% per annum (2.59% as of June 30, 2021) and is payable on January 28, 2040. This loan carries loan covenants similar to covenants on The Company’s other loans from Fulton Bank. As of June 30, 2021, the Company was in compliance with these covenants.

 

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Paycheck Protection Program Loans

 

In April and May of 2020, the Company and its subsidiaries applied for and were granted $3,471,100 in Paycheck Protection Program loans under the CARES Act. These loans bear interest of 1% and mature in two years. The Company will apply for and fully expects these loans to be forgiven under the provisions of the CARES Act and any subsequent legislation that may be applicable. These loans are recorded under Paycheck Protection Program Loans on our Condensed Consolidated Balance Sheet as of September 30, 2020, net of the short-term portion of $710,046. In April and June of 2021 $3,156,700 and $193,000 of these loans were forgiven and included in other income on the consolidated statement of operations and comprehensive income (loss).

 

On January 24, 2021, and April 17, 2021, subsidiaries of the company received additional $1,970,785 and $971,500, respectively, of Paycheck Protection Program funds as part of the second Paycheck Protection Program for which the subsidiary qualifies due to the decrease in revenues. These loans bear interest of 1% and mature in five years.

 

NOTE 15 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of Preferred Stock, $0.001 par value. As of June 30, 2021, and September 30, 2020, there were 1,935,151 and 3,256,784 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 3,000,000 shares to 4,000,000 shares.

 

For the nine months ended June 30, 2021, 198,316 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 469,949 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 1,885,151 and 2,156,784 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 1,000,000 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 zero and 1,000,000 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 (100,000) shares, par value $0.001. Under the Certificate of Designation, holders of Series C Preferred Stock are entitled to the number of votes equal to the result of (i) the total number of shares of Common Stock outstanding at the time of such vote multiplied by 10.01, and divided by (ii) the total number of shares of Series C Preferred Stock outstanding at the time of such vote, at each meeting of our shareholders with respect to any and all matters presented to our shareholders for their action or consideration, including the election of directors.

 

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During the nine-month period ended June 30, 2021, the Company retired 50,000 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 50,000 and 100,000 shares of Series C Preferred Stock issued and outstanding, respectively.

 

Common Stock

 

The Company is authorized to issue 50,000,000 shares of common stock, $0.001 par value. As of June 30, 2021, there were 18,711,463 shares issued and outstanding and at September 30, 2020, there were 17,622,539 shares issued and outstanding.

 

During the nine months ended June 30, 1,088,924 shares of the Company’s common stock have been issued to satisfy $550,000 of notes payable, $191,556 in accrued interest, and $465,772 of excess value of shares issued recorded as interest expense. On June 30, 2021, 318,218 shares were granted to satisfy $400,000 of notes payable and $80,509 of excess value of shares recorded as interest expense. These shares were issued on July 2, 2021.

 

Shares Surrendered in Settlement

 

In March 2021, Mr. Govil returned to the Company 1,000,000 shares of Series A Preferred Stock, 50,000 Shares of Series C Preferred Stock, 469,949 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.

 

NOTE 16 – SHARE-BASED COMPENSATION

 

For the nine months ended June 30, 2021, and 2020, the Company recognized $110,904 and $167,212 of share-based compensation expense on its outstanding options, respectively. As of June 30, 2021, $401,690 of unrecognized share-based compensation expense is expected to be recognized over a period of five 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 2,500 square feet of office space at a rate of $13,000 per month. The Company has recognized $117,000 of lease expense for this lease, for the nine months ended June 30, 2021.

 

The Company’s IS segment owns approximately 25,000 square feet of warehouse space in Manchester, PA and approximately 43,000 square feet of office and warehouse space in York, PA. The IS segment also leases approximately 15,500 square feet of warehouse space in Emigsville, PA from a third party in a three-year lease at a monthly rent of $4,555 expiring on August 31, 2022. The Company has paid $40,995 for this lease, for the nine months ended June 30, 2021.

 

The Company’s AT segment leases (i) approximately 6,700 square feet of office and warehouse space in Pune, India from a third party in an five year lease at a monthly rent of $6,453 (INR456,972) expiring on February 28, 2024, the Company has paid $58,077 for this lease, for the nine months ended June 30, 2021, (ii) approximately 30,000 square feet of office and warehouse space in Hauppauge, New York from a third party in a seven-year lease at a monthly rent of $28,719 expiring on March 31, 2027, the Company paid $258,471 for this property, during the nine months ended June 30, 2021 and (iii) approximately 9,400 square feet of office and warehouse space in Hampshire, England in a fifteen-year lease with at a monthly rent of $7,3295,771) which expires on March 24, 2031 and contains provisions to terminate in 2026, the Company has paid $65,961 for this lease for the nine months ended June 30, 2021.

 

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 2,070,731 shares of common stock to satisfy $2,837,814 worth of notes payable and accrued interest.

 

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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.

 

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Industrial Services (IS)

 

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

 

Significant Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.

 

Certain of our accounting policies are deemed “significant”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our significant accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 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

 

Exhibit No.   Description
2.2   Stock Purchase Agreement regarding the stock of Advanced Industrial Services, Inc., AIS Leasing Company, AIS Graphic Services, Inc., and AIS Energy Services, LLC, Dated December 15, 2015. (8)
2.3   Asset Purchase agreement between Periscope GmbH and ROB Centrex Assets UG, ROB Cemtrex Automotive GmbH, and ROB Cemtrex Logistics GmbH. (7)
3.1   Certificate of Incorporation of the Company.(1)
3.2   By Laws of the Company.(1)
3.3   Certificate of Amendment of Certificate of Incorporation, dated September 29, 2006.(1)
3.4   Certificate of Amendment of Certificate of Incorporation, dated March 30, 2007.(1)
3.5   Certificate of Amendment of Certificate of Incorporation, dated May 16, 2007.(1)
3.6   Certificate of Amendment of Certificate of Incorporation, dated August 21, 2007.(1)
3.7   Certificate of Amendment of Certificate of Incorporation, dated April 3, 2015.(3)
3.8   Certificate of Designation of the Series A Preferred Shares, dated September 8, 2009.(2)
3.9   Certificate of Designation of the Series 1 Preferred Stock.(11)
3.10   Certificate of Amendment of Certificate of Incorporation, dated September 7, 2017 (12)
3.11   Certificate of Designations of Series B Redeemable Convertible Preferred Stock..(21)
3.12   Certificate of Correction to the Certificate of Amendment to the Amended and Restated Certificate of Incorporation, as amended, of Cemtrex, Inc (6)
3.13   Amended Certificate of Designation of the Series 1 Preferred Shares, dated March 30, 2020.(16)
3.14   Certificate of Amendment of Certificate of Incorporation, dated July 29, 2020 (20)
3.15   Certificate of Correction of Certificate of Incorporation, dated July 29, 2021, filed October 7, 2020 (9)
4.1   Form of Subscription Rights Certificate. (10)
4.2   Form of Series 1 Preferred Stock Certificate. (10)
4.3   Form of Series 1 Warrant. (10)
4.4   Form of Common Stock Purchase Warrant, dated March 22, 2019. (14)
10.1   Amendment of the Term Loan Agreement between Vicon and NIL Funding, dated March 4, 2020.(17)
10.2   Consulting Agreement, dated April 22, 2020 between Centrex, Inc. and Adtron, Inc. (5)
10.3   Securities Purchase Agreement dated June 1, 2020 (18)
10.4   Securities Purchase Agreement dated June 9, 2020 (19)
10.5   Settlement Agreement and Release between Cemtrex, Inc. and Aron Govil dated February 26, 2021 (13)
14.1   Corporate Code of Business Ethics.(4)
21.1*   Subsidiaries of the Registrant
31.1*   Certification of Chief Executive Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Vice President of Finance and Principal Financial Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f of 2002.
32.2*   Certification of Vice President of Finance and Principal Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f of 2002.
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase
101.DEF*   XBRL Taxonomy Extension Definition Linkbase
101.LAB*   XBRL Taxonomy Extension Label Linkbase
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase

 

* 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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