UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the transition period from ___________to ____________
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| (Address of principal executive offices) | (Zip Code) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
| 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.
| ☒ | ☐ | 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).
| ☒ | ☐ | 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 ☐ | |
| 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. ☐
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| ☐ | Yes | ☒ |
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As of February 10, 2023, the issuer had shares of common stock issued and outstanding.
Table of Contents
CEMTREX, INC. AND SUBSIDIARIES
INDEX
| 2 |
Part I. Financial Information
Item 1. Financial Statements
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| (Unaudited) | ||||||||
| December 31, | September 30, | |||||||
| 2022 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Short-term investments | ||||||||
| Trade receivables, net | ||||||||
| Trade receivables - related party | ||||||||
| Inventory –net of allowance for inventory obsolescence | ||||||||
| Prepaid expenses and other assets | ||||||||
| Assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Royalties receivable - related party | ||||||||
| Note receivable - related party | ||||||||
| Goodwill | ||||||||
| Other | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities & Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Short-term liabilities | ||||||||
| Lease liabilities - short-term | ||||||||
| Deposits from customers | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Accrued income taxes | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Loans payable to bank | ||||||||
| Long-term lease liabilities | ||||||||
| Mortgage payable | ||||||||
| Other long-term liabilities | ||||||||
| Paycheck Protection Program Loans | ||||||||
| Deferred Revenue - long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock , $ par value, shares authorized, Series 1, shares authorized, shares issued
and shares outstanding as of December 31, 2022 and shares issued and shares outstanding as of
September 30, 2022 (liquidation value of $ | ||||||||
| Series C, shares authorized, shares issued and outstanding at December 31, 2022 and September 30, 2022 | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding at December 31, 2022 and shares issued and outstanding at September 30, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings (accumulated deficit) | ( | ) | ( | ) | ||||
| Treasury stock, shares of Series 1 Preferred Stock at December 31, 2022 and September 30, 2022 | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ||||||||
| Total Cemtrex stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For the three months ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income/(expense) | ||||||||
| Other income | ( | ) | ||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Total other income/(expense), net | ( | ) | ( | ) | ||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit/(expense) | ||||||||
| Loss from Continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations, net of tax | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Less loss in noncontrolling interest | ( | ) | ( | ) | ||||
| Net loss attributable to Cemtrex, Inc. shareholders | $ | ( | ) | $ | ( | ) | ||
| Loss Per Share-Basic & Diluted | ||||||||
| Continuing Operations | $ | ( | ) | $ | ( | ) | ||
| Discontinued Operations | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Shares-Basic & Diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
Condensed Consolidated Statements Comprehensive Income/(Loss)
(Unaudited)
| For the three months ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Other comprehensive income/(loss) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation (loss)/income | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Less comprehensive loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Comprehensive loss attributable to Cemtrex, Inc. shareholders | $ | ( | ) | $ | ( | ) | ||
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
(Unaudited)
| Treasury | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock, | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Retained | 64,100 shares of | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | Earnings | Series 1 | other | Cemtrex | Non- | ||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-in | (Accumulated | Preferred | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | Stock | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | | $ | | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | $ | |||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Continued)
(Unaudited)
| Treasury | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock, | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock Series 1 | Preferred Stock Series C | Common Stock Par | Retained | 64,100 shares of | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
| Par Value $0.001 | Par Value $0.001 | Value $0.001 | Additional | Earnings | Series 1 | other | Cemtrex | Non- | ||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-in | (Accumulated | Preferred | Comprehensive | Stockholders’ | controlling | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | Stock | Income(loss) | Equity | interest | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | | $ | | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | $ | |||||||||||||||||||||||||||||||
| Foreign currency translation gain/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to pay notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in Series 1 preferred shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the three months ended | ||||||||
December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income/(loss) to net cash used by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| (Gain)/loss on disposal of property and equipment | ( | ) | ||||||
| Noncash lease expense | ||||||||
| Change in allowance for doubtful accounts | ||||||||
| Share-based compensation | ||||||||
| Interest expense paid in equity shares | ||||||||
| Accrued interest on notes payable | ||||||||
| Amortization of original issue discounts on notes payable | ||||||||
| Gain on marketable securities | ||||||||
| Discharge of Paycheck Protection Program Loans | ( | ) | ||||||
| Changes in operating assets and liabilities net of effects from acquisition of subsidiaries: | ||||||||
| Trade receivables | ( | ) | ||||||
| Trade receivables - related party | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accounts payable - related party | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Deposits from customers | ||||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Net cash used by operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided/(used) by operating activities - discontinued operations | ( | ) | ||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Net cash used by investing activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by investing activities - discontinued operations | ||||||||
| Net cash provided/(used) by investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Payments on bank loans | ( | ) | ( | ) | ||||
| Net cash used by financing activities | ( | ) | ( | ) | ||||
| Effect of currency translation | ||||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
| Balance Sheet Accounts Included in Cash, Cash Equivalents, and Restricted Cash | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
Cemtrex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Shares issued to pay notes payable | $ | $ | ||||||
| Investment in right of use asset | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 9 |
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 company. The Company currently operates in two areas: industrial services, and intelligent security systems. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.
During the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure. The Company now has three business segments, consisting of (i) Security (ii) Industrial Services and (iii) Cemtrex Corporate.
Security
Cemtrex’s Security segment operates under the Vicon Industries brand. Vicon Industries, Inc. (“Vicon”), a majority owned subsidiary, 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 innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
Industrial Services
Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), that 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 machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.
Cemtrex Corporate
Cemtrex’s Corporate segment is the holding company of our other two segments.
Sale of former Cemtrex Brands
On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, which include the brand SmartDesk, and Cemtrex XR, Inc., which include the brands Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil.
On November 22, 2022, the Company completed the above disposition for the following consideration.
| ● | Cemtrex XR, Inc. |
| ○ | $ |
| ▪ | $ | |
| ▪ |
| 10 |
| ● | Cemtrex Advanced Technologies, Inc. |
| ○ | $ | |
| ○ | ||
| ○ | $ |
The Company’s Board of Directors, excluding Saagar Govil who abstained from all voting on these agreements, approved these actions and agreements.
Reverse Stock Split
On
January 25, 2023, the company completed a
Extension of cure period
On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, it had been granted an additional 180 days or until July 24, 2023, to regain compliance with the Minimum Bid Price Requirement on its Series 1 Preferred stock.
Listing Rule Compliance
On February 8, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has regained compliance with Listing Rule 5550(a)(2) and is in compliance with all applicable listing standards. The Company’s common stock will continue to be listed and traded on The Nasdaq Stock Market. The hearing scheduled for March 16, 2023 before the Hearings Panel has been cancelled.
Going Concern Considerations
The accompanying condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Pursuant to the requirements of the ASC 205, management must evaluate whether there are conditions or events, considered in the aggregate, which raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued.
This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The
Company has incurred substantial losses of $
| 11 |
While
our working capital deficit and current debt indicate a substantial doubt regarding the Company’s ability to continue as a going
concern, the Company has historically, from time to time, satisfied and may continue to satisfy certain short-term liabilities through
the issuance of common stock, thus reducing our cash requirement to meet our operating needs. Additionally, the Company has sold unprofitable
brands, reducing the cash required to maintain those brands, reevaluated our pricing model on our Vicon brand to improve margins on those
products, and has effected a
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, 2022, of Cemtrex Inc.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X pursuant to the requirements of the U.S. Securities and Exchange Commission (‘SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company’s management. The Company evaluates its estimates and assumptions on an ongoing basis.
The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Cemtrex Technologies Pvt. Ltd., Advanced Industrial Services, Inc., and the Company’s majority owned subsidiary Vicon Industries, Inc. and its subsidiary, Vicon Industries Ltd. All inter-company balances and transactions have been eliminated in consolidation.
Accounting Pronouncements
Significant Accounting Policies
Note 2 of the Notes to Consolidated Financial Statements, included in the annual report on Form 10-K for the year ended September 30, 2022, includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
| 12 |
Recently Issued Accounting Standards
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the impact of this ASU on our financial statements.
On June 30, 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which (1) clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. Under current guidance, stakeholders have observed diversity in practice related to whether contractual sale restrictions should be considered in the measurement of the fair value of equity securities that are subject to such restrictions. On the basis of interpretations of existing guidance and the current illustrative example in ASC 820-10-55-52 of a restriction on the sale of an equity instrument, some entities use a discount for contractual sale restrictions when measuring fair value, while others view the application of such a discount to be inconsistent with the principles of ASC 820. To reduce the diversity in practice and increase the comparability of reported financial information, ASU 2022-03 clarifies this guidance and amends the illustrative example. ASU No. 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the impact of this ASU on our financial statements.
The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 3 – DISCONTINUED OPERATIONS
Due
to the on-going losses and risk associated with the SmartDesk business the Company has valued the royalty and SAFE agreement associated with
the SmartDesk sale at $
Based
on sales projections for Cemtrex XR, Inc., the Company does not believe that it will exceed the sales levels required to exceed the
$
The following table summarizes the loss on the sale:
| Purchase Price | $ | |||
| Less cash and cash equivalents transferred | ( | ) | ||
| Less Liabilities assumed | ( | ) | ||
| Net purchase price | $ | |||
| Assets Sold | ||||
| Accounts receivable, net | $ | |||
| Inventory, net | ||||
| Prepaid expenses and other assets | ||||
| Property and equipment, net | ||||
| Goodwill | ||||
| Liabilities Transferred | ||||
| Accounts payable | ||||
| Short-term liabilities | ||||
| Long-term liabilities | ||||
| Net assets sold | $ | |||
| Pretax loss on sale of Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc.Companies | $ | ( | ) |
| 14 |
Assets and liabilities included within discontinued operations on the Company’s Condensed Consolidated Balance Sheets at December 31, 2022 and September 30, 2022 are as follows;
| December 31, | September 30, | |||||||
| 2022 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Trade receivables, net | ||||||||
| Inventory –net of allowance for inventory obsolescence | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Short-term liabilities | ||||||||
| Deposits from customers | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Deferred revenue | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
Loss from discontinued operations, net of tax and the loss on sale of discontinued operations, net of tax, of Cemtrex Advanced Technologies, Inc. and Cemtrex XR, Inc., sold during the first quarter of fiscal year 2023, which are presented in total as discontinued operations, net of tax in the Company’s Condensed Consolidated Statements of Operations for the three-month periods ended December 31, 2022 and 2021, are as follows:
| Three months ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Total net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Operating, selling, general and administrative expenses | ||||||||
| Other expenses | ||||||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ||||
| Amortization of discounted royalties | ||||||||
| Loss on sale of discontinued operations | ( | ) | ||||||
| Income tax provision | ||||||||
| Discontinued operations, net of tax | ( | ) | ( | ) | ||||
During
the quarter ended December 31, 2022, Vicon completed the closure of its discontinued operating entity Vicon Systems, Ltd. located in
Israel. The Company received funds of $
| 15 |
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. For the three months ended December 31, 2022, and 2021, 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 | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Warrants to purchase shares | ||||||||
| Options | ||||||||
NOTE 5 – SEGMENT INFORMATION
During the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure. The Company reports and evaluates financial information for three current segments: Security segment, Industrial Services segment and the Corporate segment.
The following tables summarize the Company’s segment information:
| Three months ended December 31, 2022 | ||||||||||||
| Security | Industrial Services | Corporate | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of revenues | ||||||||||||
| Gross profit | $ | $ | $ | |||||||||
| Operating expenses | ||||||||||||
| Sales, general, and administrative | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Research and development | ||||||||||||
| Operating loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Other income/(expense) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Three months ended December 31, 2021 | ||||||||||||
| Security | Industrial Services | Corporate | ||||||||||
| Revenues | $ | $ | ||||||||||
| Cost of revenues | ||||||||||||
| Gross profit | $ | $ | $ | |||||||||
| Operating expenses | ||||||||||||
| Sales, general, and administrative | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Research and development | ||||||||||||
| Operating loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other income/(expense) | $ | $ | ( | ) | $ | ( | ) | |||||
| 16 |
| December 31, | September 30, | |||||||
| 2022 | 2022 | |||||||
| Identifiable Assets | ||||||||
| Security | $ | $ | ||||||
| Industrial Services | ||||||||
| Corporate | ||||||||
| Discontinued operations | ||||||||
| Total Assets | $ | $ | ||||||
NOTE 6 – RESTRICTED CASH
A
subsidiary of the Company participates in a consortium in order to self-insure group care coverage for its employees. The plan is administrated
by Benecon Group and the Company makes monthly deposits in a trust account to cover medical claims and any administrative costs associated
with the plan. These funds, as required by the plan are restricted in nature and amounted to $
NOTE 7 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under the guidance for fair value measurements are described below:
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Our Level 1 assets include cash equivalents, banker’s acceptances, trading securities investments and investment funds. We measure trading securities investments and investment funds at quoted market prices as they are traded in an active market with sufficient volume and frequency of transactions.
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified contractual term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. Level 3 assets and liabilities include cost method investments. 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.
| 17 |
The Company’s fair value assets at December 31, 2022 and September 30, 2022, are as follows.
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | Balance | |||||||||||||
| Markets for | Observable | Unobservable | as of | |||||||||||||
| Identical Assets | Inputs | Inputs | December 31, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2022 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | Balance | |||||||||||||
| Markets for | Observable | Unobservable | as of | |||||||||||||
| Identical Assets | Inputs | Inputs | September 30, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2022 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in marketable securities | ||||||||||||||||
| (included in short-term investments) | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
NOTE 8 – TRADE RECEIVABLES, NET
Trade receivables, net consist of the following:
| December 31, | September 30, | |||||||
| 2022 | 2022 | |||||||
| Trade receivables | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Trade receivables include amounts due for shipped products and services rendered.
Allowance for doubtful accounts includes estimated losses resulting from the inability of our customers to make the required payments.
NOTE 9 – INVENTORY, NET
Inventory, net, consist of the following:
| December 31, | September 30, | |||||||
| 2022 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less: Allowance for inventory obsolescence | ( | ) | ( | ) | ||||
| Inventory –net of allowance for inventory obsolescence | $ | $ | ||||||
| 18 |
NOTE 10 – PREPAID AND OTHER CURRENT ASSETS
On
December 31, 2022, the Company had prepaid and other current assets consisting of prepayments on inventory purchases of $
NOTE 11 – PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
| December 31, | September 30, | |||||||
| 2022 | 2022 | |||||||
| Land | $ | $ | ||||||
| Building and leasehold improvements | ||||||||
| Furniture and office equipment | ||||||||
| Computers and software | ||||||||
| Machinery and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended December 31, 2022, and 2021 were $
NOTE 12 – OTHER ASSETS
As
of December 31, 2022, the Company had other assets of $
On
November 13, 2020, Cemtrex made a $
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, for total consideration of $
As
of December 31, 2022, and September 30, 2022, there was $
Receivables
of $
| 19 |
On
February 26, 2021, the Company entered into a Settlement Agreement and Release with Aron Govil regarding transactions Cemtrex’s
Board of Directors determined were incorrectly handled and accounted for. Mr. Govil executed a secured promissory note (the “Note”)
in the amount of $
On November 22, 2022, the Company entered into two Asset Purchase Agreements and one Simple Agreement for Future Equity (“SAFE”) with the Company’s CEO, Saagar Govil, to secure the sale of the subsidiaries Cemtrex Advanced Technologies, Inc, and Cemtrex XR, Inc., which include the brands SmartDesk, Cemtrex XR, Virtual Driver Interactive, Bravo Strong, and good tech (formerly Cemtrex Labs), to Mr. Govil (see NOTE 1).
As
of December 31, 2022, there was $
As
of December 31, 2022, there were royalties receivable from the sale of Cemtrex, XR, Inc. of $
NOTE 14 – LEASES
The
Company is party to contracts where we lease property from others under contracts classified as operating leases. The Company primarily
leases office and operating facilities, vehicles, and office equipment. The weighted average remaining term of our operating leases was
approximately
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.
A reconciliation of undiscounted cash flows to operating lease liabilities recognized in the condensed consolidated balance sheet at December 31, 2022, is set forth below:
| Years ending September 30, | Operating Leases | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 & Thereafter | ||||
| Undiscounted lease payments | ||||
| Amount representing interest | ( | ) | ||
| Discounted lease payments | $ | |||
Lease costs for the three months ended December 31, 2022 and 2021 are set forth below.:
| For the three months ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Lease costs: | ||||||||
| Finance lease costs | $ | $ | ||||||
| Operating lease costs | ||||||||
| Total lease cost | $ | $ | ||||||
| 20 |
NOTE 15 – LINES OF CREDIT AND LONG-TERM LIABILITIES
The following table outlines the Company’s lines of credit and liabilities.
| December 31, | September 30, | |||||||||||
| Interest Rate | Maturity | 2022 | 2022 | |||||||||
| Fulton Bank line of credit $ | Secured Overnight Financing Rate (“SOFR”) plus | N/A | $ | $ | ||||||||
| Fulton Bank loan $ | SOFR plus | |||||||||||
| Fulton Bank loan $ | SOFR plus | |||||||||||
| Fulton Bank - $ | SOFR plus | |||||||||||
| Fulton Bank mortgage $ | SOFR plus | |||||||||||
| Note payable - $ | ||||||||||||
| Note payable - $ | ||||||||||||
| Note payable - $ | ||||||||||||
| Term Loan Agreement with NIL Funding Corporation (“NIL”) - $ | ||||||||||||
| Paycheck Protection Program loan - $ | ||||||||||||
| Total Notes Payable | $ | $ | ||||||||||
| Less: Current maturities | ( | ) | ( | ) | ||||||||
| Notes Payable, Long Term | $ | $ | ||||||||||
| 21 |
NOTE 16 – SHAREHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue shares of Preferred Stock, $ par value. As of December 31, 2022, and September 30, 2022, there were and shares issued and and shares outstanding, respectively.
Series 1 Preferred Stock
During the three months ended December 31, 2022, shares of Series 1 Preferred Stock were issued to pay dividends to holders of Series 1 Preferred Stock.
As of December 31, 2022, and September 30, 2022, there were and shares of Series 1 Preferred Stock issued and and shares of Series 1 Preferred Stock outstanding, respectively.
Series C Preferred Stock
As of December 31, 2022, and September 30, 2022, there were shares of Series C Preferred Stock issued and outstanding.
Common Stock
On
January 25, 2023, the Company completed a
The Company is authorized to issue shares of common stock, $ par value. As of December 31, 2022, there were shares issued and outstanding and at September 30, 2022, there were shares issued and outstanding.
During
the three months ended December 31, 2022, shares of the Company’s common stock have been issued to satisfy $
For the three months ended December 31, 2022, and 2021, the Company recognized $ and $ of share-based compensation expense on its outstanding options, respectively. As of December 31, 2022, $ of unrecognized share-based compensation expense is expected to be recognized over a period of four years. Future compensation amounts will be adjusted for any change in estimated forfeitures.
During the three months ended December 31, 2022, options to purchase shares of the Company’s common stock at an exercise price of $
NOTE 18 – COMMITMENTS AND CONTINGENCIES
The
Company has its corporate headquarters in New York City with a 12-month lease of
The
Company’s Industrial Services segment owns approximately
| 22 |
The
Company’s Security segment leases (i) approximately
NOTE 19 – SUBSEQUENT EVENTS
Reverse Stock Split
On
January 25, 2023, the company completed a
Extension of cure period
On January 26, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that, it had been granted an additional 180 days or until July 24, 2023, to regain compliance with the Minimum Bid Price Requirement on its Series 1 Preferred stock.
Listing Rule Compliance
On February 8, 2023, the Company received a notification letter from the Listing Qualifications Department of Nasdaq notifying the Company that it has regained compliance with Listing Rule 5550(a)(2) and is in compliance with all applicable listing standards. The Company’s common stock will continue to be listed and traded on The Nasdaq Stock Market. The hearing scheduled for March 16, 2023 before the Hearings Panel has been cancelled.
| 23 |
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 company. The currently operates in two areas: industrial services, and intelligent security systems. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Cemtrex” or “management” refer to Cemtrex, Inc. and its subsidiaries.
During the first quarter of fiscal year 2023, The Company reorganized its reporting segments to be in line with its current structure. The Company has three business segments, consisting of (i) Security (ii) Industrial Services and (iii) Cemtrex Corporate.
Security
Cemtrex’s Security segment operates under the Vicon Industries brand. Vicon Industries, a majority owned subsidiary, 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 innovative, mission critical security and video surveillance solutions utilizing Artificial Intelligence (AI) based data algorithms.
Industrial Services
Cemtrex’s Industrial Services segment operates under the brand, Advanced Industrial Services (“AIS”), that 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 machinery, packaging, printing, chemical, and other manufacturing markets. The focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets, including small projects, sustaining capital, turnarounds, maintenance, specialty welding services, and high-quality scaffolding.
Cemtrex Corporate
Cemtrex’s Corporate segment is the holding company of our other two segments.
| 24 |
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, 2022.
Results of Operations – For the three months ending December 31, 2022, and 2021
Total revenue for the three months ended December 31, 2022, and 2021 was $11,970,242 and $9,413,395, respectively, an increase of $2,556,847, or 27%. Loss from continuing operations for the three months ended December 31, 2022, was $3,096,753 compared to $3,770,865 for the three months ended December 31, 2021, a decrease on the loss of $674,112, or 18%. Total revenue for the quarter increased, as compared to total revenue in the same period last year, due to increased demand for the Company’s products and services. Loss from operations decreased due to increased revenues as compared to the same period in the prior year.
Revenues
Our Security segment revenues for the three months ended December 31, 2022, increased by $2,646,131 or 40% to $7,004,744 from $4,358,613 for the three months ended December 31, 2021. This increase is due to an increased demand for Security technology.
Our Industrial Services segment revenues for the three months ended December 31, 2022, decreased by $88,474 or 2%, to $4,965,498 from $5,053,972 for the three months ended December 31, 2021. This decrease is mainly due to timing of the recognition of revenue for the segment’s products and services.
Gross Profit
Gross Profit for the three months ended December 31, 2022, was $5,042,615 or 42% of revenues as compared to gross profit of $3,222,250 or 34% of revenues for the three months ended December 31, 2021.
Gross profit in our Security segment was $3,403,690 or 49% of the segment’s revenues for the three months ended December 31, 2022 as compared to gross profit of $1,791,255 or 41% of the segment’s revenues for the period ended December 31, 2021. Gross profit as a percentage of revenues increased in the three months ended December 31, 2022, compared to the three months ended December 31, 2021, due to price increases implemented throughout the segment in response to rising costs of our goods and transportation costs.
Gross profit in our Industrial Services segment was $1,638,925 or 33% of the segment’s revenues for the three months ended December 31, 2022 as compared to gross profit of $1,430,185 or 28% of the segment’s revenues for the period ended December 31, 2021. Gross profit as a percentage of revenues increased in the three months ended December 31, 2022, compared to the three months ended December 31, 2021, was primarily due to lower subcontractor costs.
| 25 |
General and Administrative Expenses
General and administrative expenses for the three months ended December 31, 2022, increased $7,882 or 0.14% to $5,455,833 from $5,447,951 for the three months ended December 31, 2021. General and administrative expenses as a percentage of revenues were 46% and 58% of revenues for the three-month periods ended December 31, 2022, and 2021, respectively.
Research and Development Expenses
Research and Development expenses for the three months ended December 31, 2022, were $1,538,218 compared to $1,072,898 for the three months ended December 31, 2021. Research and Development expenses are primarily related to the Security Segment’s development of next generation solutions associated with security and surveillance systems software.
Other Income/(Expense)
Other income/(expense) for the first quarter of fiscal 2022, was an expense of $1,145,317 as compared to an expense of $472,266 for the first quarter of fiscal 2021. Other income/(expense) for the three months ended December 31, 2022, was mainly driven by interest on the Company’s debt. Other income/(expense) for the three months ended December 31, 2021, included the gain on the forgiveness of our PPP loans of $971,500.
Provision for Income Taxes
During the first quarters of fiscal 2022, and 2021, the Company took no provision on income taxes. The provision for income tax is based upon the projected income tax from the Company’s various U.S. and international subsidiaries that are subject to their respective income tax jurisdictions and the Company’s projected ability to utilize net loss carryforwards.
Loss from Discontinued Operations
As discussed in Note 3, the Company had losses on discontinued operations of $3,239,621. The losses are comprised of the $2,455,701 loss on the sale of Cemtrex Advanced Technologies, and Cemtrex XR, Inc.. The net loss of $877,792 for the three months ended December 31, 2022, and the net gain on the recovery of cash from Vicon Industries Ltd. of $89,085. Losses on discontinued operations for the three months ended December 31, 2021 were $758,241 attributable to the operations of the Cemtrex brands discussed in Note 3.
Net income/(loss) attributable to Cemtrex, Inc. shareholders
The Company had a net loss attributable to Cemtrex, Inc. shareholders of $6,277,711, or 52% of revenues, for the three-month period ended December 31, 2022, as compared to net loss attributable to Cemtrex, Inc. shareholders of $4,477,951 or 42% of revenues, for the three months ended December 31, 2021. The net loss attributable to Cemtrex, Inc. shareholders increased in the first quarter as compared to the same period last year was primarily due to the loss on discontinued operations.
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 deficit was $469,270 at December 31, 2022, compared to working capital of $4,754,493 at September 30, 2022. This includes cash and equivalents and restricted cash of $7,370,333 at December 31, 2022, and $12,188,096 at September 30, 2022. The decrease in working capital was primarily due to the Company’s transfer of cash to in the sale of Cemtrex Advanced Technologies and Cemtrex XR, Inc. and accrual of interest on short-term liabilities during the first quarter of fiscal year 2023.
| 26 |
Cash used by operating activities for continuing operations for the three months ended December 31, 2022 and 2021 was $5,872,310 and $3,633,702 respectively. Cash provided by operating activities for discontinued operations for the three months ended December 31, 2022 was $2,501,426, compared to using cash of $719,237. The increase in operating cash usage for continuing operations was primarily due to increases of trade receivables, prepaid expenses, and other assets and payment of accounts payable and other liabilities.
Trade receivables increased $1,536,861 or 28% to $6,936,077 at December 31, 2022, from $5,399,216 at September 30, 2022. The increase in trade receivables is attributable to increased sales in the Security segment.
Inventories increased $116,492 or 1% to $8,604,759 at December 31, 2022, from $8,487,817 at September 30, 2022. The increase in inventories is attributable to inventories in transit yet to be sold.
Cash used by investment activities for continuing operations for the three months ended December 31, 2022 was $568,111 compared to $291,666 for the three-month period ending December 31, 2021. Cash provided by investing activities for discontinued operations for the three months ended December 31, 2022 was $207,329. Investing activities for the first quarter of fiscal year 2023 were driven mainly by the Company’s purchase of property and equipment.
Cash used by financing activities for the three months ended December 31, 2022, was $600,920 compared to $632,753 for the three-month period ending December 31, 2021. Financing activities were primarily driven by payments on the Company’s debt and the royalties receivable for discontinued operations.
While our working capital deficit and current debt indicate a substantial doubt regarding the Company’s ability to continue as a going concern, the Company has historically, from time to time, satisfied and may continue to satisfy certain short-term liabilities through the issuance of common stock, thus reducing our cash requirement to meet our operating needs. Additionally, the Company has recently sold unprofitable brands, reducing the cash required to maintain those brands, reevaluated our pricing model on our Vicon brand to improve margins on those products, and has effected a reverse stock split on our common stock to remain trading on the Nasdaq Capital Markets, and improved our ability to potentially raise capital through equity offerings that we may use to satisfy debt. In the event additional capital is raised through equity offerings and/or debt is satisfied with equity, it may have a dilutive effect on our existing stockholders. While the Company believes these plans are sufficient to meet the capital demands of our current operations for at least the next twelve months, the is no guarantee that we will succeed.
Overall, there is no guarantee that cash flow from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet our working capital needs. We currently do not have adequate cash to meet our short or long-term needs. The consolidated financial statements do not include any adjustments relating to this uncertainty.
| 27 |
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 December 31, 2022. Based on their evaluation, our management has concluded that as of December 31, 2022, our disclosure controls and procedures were not effective and there is a material weakness in our internal control over financial reporting. The material weakness relates to the Company lacking sufficient accounting personnel. The shortage of accounting personnel resulted in the Company lacking entity level controls around the review of period-end reporting processes, accounting policies and public disclosures. Additionally, the Company’s current processes and systems do not provide for necessary, timely reconciliation of certain accounts and sufficient consideration regarding recoverability of certain assets. This deficiency is common in small companies, similar to us, with limited personnel.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of December 31, 2022, 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 weaknesses, the Company has implemented measures that they believe have mitigated these weaknesses but has not had sufficient time to fully evaluate these measures. These measures include; (i) updating our accounting software to ensure tighter control over entries and providing improved data for timely reconciliation of certain accounts, and (ii) engaged a third-party accounting firm to provide review of period-end reporting processes, accounting policies and public disclosures.
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 continuing to improve its internal controls through the actions mentioned above.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
| 28 |
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 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended December 31, 2022, 39,016 shares of the Company’s common stock have been issued to satisfy $31,331 of notes payable, $168,669 in accrued interest, and $32,145 of excess value of shares issued recorded as interest expense. Such shares were issued pursuant to the exemption contained under Section 4(a)(2) of the Securities Act of 1933, as amended.
| 29 |
Item 6. Exhibits
| * | Filed herewith |
| 1 | Incorporated by reference from Form 10-12G filed on May 22, 2008. |
| 2 | Incorporated by reference from Form 8-K filed on September 10, 2009. |
| 3 | Incorporated by reference from Form 8-K filed on August 22, 2016. |
| 4 | Incorporated by reference from Form 8-K filed on July 1, 2016. |
| 5 | Incorporated by reference from Form S-8 filed on May 1, 20120 |
| 6 | Incorporated by reference from Form 8-K filed on June 12, 2019. |
| 7 | Incorporated by reference from Form 8-K filed on January 20, 2023. |
| 8 | Incorporated by reference from Form 8-K/A filed on September 26, 2016. |
| 9 | Incorporated by reference from Form 10-Q filed on May 28, 2021. |
| 10 | Incorporated by reference from Form S-1 filed on August 29, 2016 and as amended on November 4, 2016, November 23, 2016, and December 7, 2016. |
| 11 | Incorporated by reference from Form 8-K filed on January 24, 2017. |
| 12 | Incorporated by reference from Form 8-K filed on September 8, 2017. |
| 13 | Incorporated by reference from Form 8-K filed on February 26, 2021. |
| 14 | Incorporated by reference from Form 8-K filed on March 22, 2019. |
| 15 | Incorporated by reference from Form 10-Q filed on May 16, 2022. |
| 16 | Incorporated by reference from Form 8-K filed on April 1, 2020. |
| 17 | Incorporated by reference from Form 8-K filed on March 9, 2020. |
| 18 | Incorporated by reference from Form 8-K filed on June 4, 2020. |
| 19 | Incorporated by reference from Form 8-K filed on June 12, 2020. |
| 20 | Incorporated by reference from Form 10-K filed on January 5, 2021. |
| 21 | Incorporated by reference from Form 8-K filed on October 4, 2022. |
| 22 | Incorporated by reference from Form 8-K filed on November 29, 2022. |
| 30 |
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: | February 14, 2023 | By: | /s/ Saagar Govil |
| Saagar Govil | |||
| Chief Executive Officer | |||
| Dated: | February 14, 2023 | /s/ Paul J. Wyckoff | |
| Paul J. Wyckoff | |||
| Interim Chief Financial Officer | |||
| and Principal Financial Officer | |||
| 31 |